New-Home Sales Fall to Record Low in February
Economists had expected February new home sales to rise to a 315,000 annualized rate, according to a Bloomberg survey. It was the fourth straight monthly decline for new home sales, and the streak will raise doubts among some economists on the likelihood of a U.S. housing sector recovery this year.
Weakness Despite Homebuyer Help
January's new home sale total was also revised to a 315,000 annualized rate, up slightly from the previously released 309,000 annualized rate. New home sales totaled a 345,000 rate in December, 2009, and 362,000 in November, 2009. They hit a 12-month high of only 419,000 in July, 2009, and totaled 354,000 a year ago, in February, 2009.
The four-month sales decline has occurred despite the expanded home buyer tax credit. Congress had extended and increased the home purchase tax credit -- to $8,000 for first-time buyers, $6,500 for repeat home owners -- and buyers have until Apr. 30, 2010 to take advantage of the program.
In another troubling trend, inventories, which had been trending lower for more than a half-year, unexpectedly rose again in February, inching higher to a 9.2-month supply, from a 9.1-month supply in January. Still, the February median sales price of a new home rose 5.2%, to $220,500, compared to a year ago.
Most parts of the country shared the pain in February: New home sales plunged 20% in the Northeast, fell 18% in the Midwest, and decreased 4.6% in the South. One bright spot -- they surged 20.8% in the West.
Can't Blame the Weather Completely
New homes sales figures are significant since increases have been strongly correlated in the past with higher demand and an economic expansion. That's because when new homes are sold, owners tend to buy durable goods and big ticket items for their new residence -- furniture, appliances, home supplies. An uptrend in these purchases is good news for the economy and bullish for the stock market.
However, government statisticians also caution that the new home sales statistic contains a margin of error and is subject to revisions.
There's no way to sugar-coat the February data or the four-month downtrend. Not all of the recent decline can be attributed to this year's extreme winter weather -- not an ideal season to buy and move into a new home. The weakness also reflects understandable buyer caution in the face of barely stabilizing home prices. After all, who wants to buy a depreciating asset? Many potential buyers are no-doubt seeing the high inventory totals and holding off their purchase, calculating that prices may drop in the quarters ahead. Others are holding off due to job market uncertainty.