US New Home Sales Plunge – Again

Sales of new homes in the US dropped for a third straight month in February to the lowest rate on record, adding to worries that the real estate market remains in decline. I can still hear David Lereah in the woods calling ‘Bottom… Bottom.. BOTTOM!!!!’ to no avail…

The commerce department said new home sales fell 16.9 per cent to an adjusted annual rate of 250,000, compared with a revised rate of 301,000 in January. That missed economists’ expectations of 290,000, and represented a 28 per cent decline from February 2010.

“Housing is not yet participating in the broader recovery,” said Ian Shepherdson, chief US economist at High Frequency Economics, an independent research group. “Sales for the previous three months were revised up by a total of 30,000, so the net number is not quite as bad as the headline, but it is still horrible.”

The median price for a new house sank 13.9 per cent to $202,100, the lowest level since December 2003, dragged by the “significant number of homes that are being sold at fire-sale prices”, said Jim Russell, managing director of the Collingwood Group, a consultancy. That includes the high number of foreclosed homes entering the market as banks work through the foreclosures crisis.

Sales fell across all regions. The northeast was hardest hit, with sales plunging 57.1 per cent from January.

The time it would take to sell the homes currently on the market rose to 8.9 months. Economists say inventory would be cleared in about six months in a healthy housing market.

The inventory build-up “indicates to us that we have a lack of demand because [buyers] don’t have access to credit,” Mr Russell said. That picture will only change with a more sustained recovery in employment, he added.

Employment stability creates a “tremendous waterfall” that “goes all the way through the economy” as workers buy homes and spend money to furnish them with appliances, fixtures and electronics. But current levels of job creation are still too low to have that spillover effect, Mr Russell said.

“If were able to produce service-related jobs and manufacturing jobs that increase our productivity and our GDP, then we’re going to have disposable cash that can be used for the purchase of homes. The supply can then dry up very quickly”, he said. “It’s going to take a while to wash through this.”

On Monday, the National Association of Realtors said sales of existing homes fell a greater-than-expected 9.6 per cent and prices dropped 5.2 per cent amid tight credit conditions and the growing backlog of homes for sale.