New Home Sales Drop

New home sales shrank 2 percent in February to a 881,000 annual pace, the Commerce Department said Monday.

The number of unsold homes rose 1 percent to 301,000, the most in two years. That represents a 4-month supply at the current sales pace.

The median sales price was a record $158,000.

The three previous months' sales were revised lower. November's sales were revised from 1.002 million to a record 985,000, December's were revised from 966,000 to 964,000 and January's from 918,000 to 899,000.

The late fall and early winter months were unseasonably warm and dry in much of the nation, leading to higher-than-normal sales. The revisions show that sales, while healthy, weren't quite so robust.

In all of 1998, 886,000 new homes were sold.

The drop in February and the revisions show a housing market slowing moderately from an extremely torrid pace. The pace of sales is still very high by historic standards.

Mortgage rates have been heading higher in the past few months, but much of that movement occurred after February's sales were in the pipeline. Sales should slow further as rates creep higher.

Economists surveyed by CBS.MarketWatch.com expected a 916,000 annual pace.

The slight slowdown in housing should be welcome news at the Federal Open Market Committee meeting Tuesday. The Fed has been looking for signs of a pause in economic growth, fearing that an overheated economy could begin to push prices higher.

Home sales are a key to consumer spending, since moving to a new home often triggers purchases of big-ticket consumer durables like furniture and appliances. American consumer spending has been the main engine of global economic growth in the past 18 months.

Few analysts are predicting any change in monetary policy from the Fed this month.

In February, new home sales soared 23 percent to 177,000 in the Midwest and were unchanged at 86,000 in the Northeast. Sales fell 9 percent to 231,000 in the West and 7 percent to 386,000 in the South.

The upper end of the market remains healthy. The median (half higher, half lower) sales price rose 5 percent to a record $158,000. The mean (or average) sales price rose 2 percent to $187,200.

Written By Rex Nutting, CBS MarketWatch