Economists surprised as new-home sales fall to lowest level in nearly 50 years
Thursday, February 25, 2010
Sales of newly built homes unexpectedly plummeted in January to their lowest level in nearly five decades, providing more evidence of the housing market's fragility.
Purchases of new single-family homes dropped 11.2 percent in January from December to a seasonally adjusted annual rate of 309,000, the Commerce Department reported Wednesday. Sales fell in every region except the Midwest, and the raw number of new homes on the market rose for the first time in nearly three years.
"No sugarcoating these numbers," Mike Larson, an analyst at Weiss Research, wrote in a note to clients. "They stink."
The figures are the latest in a string of mixed indicators about the housing market's health and renew questions about whether the federal government should follow through on its plans to soon end initiatives aimed at stimulating sales. Those efforts include a Federal Reserve program that helped pull down interest rates and a tax credit for first-time buyers and others.
Sales of new homes are generally dwarfed by activity in the existing-homes market, which historically has made up at least three-quarters of all home sales. But new-home sales are closely tracked because the construction industry contributes to job creation and economic growth.
Last year, sales of new homes peaked in July as people rushed to take advantage of low interest rates, low prices and an $8,000 tax credit for first-time buyers that was due to end Nov. 30.
But sales started to slip late last year as it became too late for prospective buyers to take advantage of the tax credit, which has since been extended. The rise in unemployment also spooked consumers, as reflected in dismal consumer confidence figures released Tuesday.
Still, experts who track the industry did not expect such a dramatic drop in the January sales data, which captured contract signings that month. David Crowe, chief economist of the National Association of Home Builders, said he expected sales in the 375,000 to 390,000 range.
"In the consumer's mind, the economy is still very ill, and they'd like to see better overall signals from the economy in general and the employment market in particular before they move along with such a significant purchase," Crowe said.
Crowe said he also suspects that the tax credit cleared out a glut of starter homes and left behind pricier homes that are currently unpopular with prospective buyers.
He cited a portion of Wednesday's report that categorizes sales among homes that were completed, under construction or not yet started. The biggest drop-off was in the completed homes. "That says that what the builders have left is not necessarily what the buyers want," Crowe said.
Builders also continue to struggle with competition from previously owned homes, most notably the foreclosures that are on the market at fire-sale prices.
The median price of new homes sold in January was $203,500, down 2.4 percent from a year ago and down 5.6 percent from December.
The plunge in new-home sales was led by a 35 percent drop in the Northeast. Sales fell 9.5 percent in the South, which includes the Washington area. Prospects for a pickup in February sales look bleak given the bad weather that hit many parts of the country this month, said Mark Vitner, a senior economist at Wells Fargo Securities.
"The January number is so low, it's hard to imagine it can fall any further," Vitner said. "But it can."
The tax credit that motivated millions of buyers last year was renewed through April 30 and extended to include some current homeowners. But analysts said consumers are not in a hurry to take advantage of it this early.