New Home Sales Plummet

Actors Dennis Hopper, left, and Eric Roberts speak to each other during the Starz panel for "Crash" at the Television Critics Association summer press tour in Pasadena, Calif. on Wednesday, July 29, 2009.
AP Photo/Matt Sayles
Sales of new homes plunged by the largest amount in nearly nine years in February while the median price of a new home dropped for the fourth straight month, providing fresh evidence that the nation's once-booming housing market is cooling off.

The Commerce Department reported that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes. It was the second straight monthly decline and was much bigger than the small 2 percent dip that Wall Street was expecting.

The drop in new home sales followed news Thursday that sales of previously owned homes actually rose by a stronger-than-expected 5.2 percent last month following five straight monthly declines. Analysts said the trend in both reports pointed to a slowing housing market after five record-setting years.

The National Association of Realtors reported Thursday that that sales of existing single-family homes and condominiums rose by 5.2 percent in February to a seasonally adjusted annual rate of 6.91 million units.

Analysts said the weather-related boost was likely to be short-lived, with sales expected to slow again in coming months as rising mortgage rates further cool the housing market, which has posted record sales levels for five straight years.

"Weather conditions across much of the country were unseasonably mild in January and likely were a factor in higher levels of buyer activity, which boosted sales that closed in February," said David Lereah, chief economist for the Realtors.

The slowdown in new-home sales was putting pressure on prices. The median price of a new home sold last month dropped to $230,400, down by 1.6 percent from January and off 2.9 percent from February 2005. The median is the mid-point where half the homes sold for more and half for less.

In other economic news, orders to U.S. factories for big-ticket manufactured goods rose by 2.6 percent last month, the biggest gain since November, reflected a surge in demand for commercial aircraft. Outside of the volatile transportation sector, orders actually fell by 1.3 percent, but economists said the underlying trend for manufacturing remained strong.

Also, the Labor Department reported that the number of newly laid off Americans filing claims for unemployment benefits fell by a larger-than-expected 11,000 week to 302,000, signaling that the labor market remains healthy.

The 10.5 percent drop in new home sales in February followed a 5.3 percent decline in January and was the biggest drop since a similar 10.5 percent fall in April 1997.

Sales of new homes have fallen in four of the past five months with the sales rate of 1.08 million units the slowest pace since May 2003.

While sales of both new and existing homes climbed to new all-time highs in 2005, the fifth consecutive annual records, analysts believe sales will decline this year as the housing boom slows under the impact of rising mortgage rates.

By sector of the country, sales fell by the largest amount last month in the West, a drop of 29.4 percent. Sales were also down in the South, dropping 6.4 percent. Sales rose in the Northeast by 12.7 percent while sales in the Midwest were up by 5.2 percent.