New Home Sales Plunge in January to Record Low

Updated: Can you hear the screaming? In January sales of new homes in the U.S. plunged like a rollercoaster, 10.2 percent, to a record low of just 309,000 annual units. The dive was accelerated by increasing unemployment, foreclosures and U.S. consumers whose nerves go jingle, jangle, jingle.

Sales of new houses decreased in three of four regions, led by a 28 percent plunge in the West. In the good news department, purchases increased 12.5 percent in the Northeast.

"As disturbing as this report sounds, there is reason to believe that some potential home buyers may have purposely delayed action in January as they waited to see how details of the President's economic stimulus plan could affect a home purchase," said Joe Robson, chairman of the National Association of Home Builders (NAHB) and a home builder from Tulsa, Okla. "Now that those details are known - particularly those relating to the new first-time home buyer tax credit and higher loan limits for government-backed mortgages - we are hopeful that many buyers will be looking to take advantage of them in the coming months."

"Clearly, the downward pressures that have been exerting themselves on the housing market remain in place, including the weakened economy, ongoing job losses and very low consumer confidence," said NAHB Chief Economist David Crowe. "But as more home buyers find out about the newly enhanced tax credit, and other parts of the economic stimulus package start kicking in, we expect to see some firming effect on home sales. The hope is that a certain amount of pent-up demand will be released as those who were in a 'wait-and-see' mode decide they now have the information they need to proceed."

Home builders continued to do a good job of reducing their inventories in January, with the number of new homes on the market falling for a 21st consecutive month to 342,000 units. However, due to the historically slow sales pace, the months' supply continued to rise for a fourth consecutive month, to 13.3.

Sales fell 5.6 percent in the Midwest, 6.5 percent in the South and 28 percent in the West. The Northeast was only exception to the rule, as noted above.

The 309,000 number is the lowest level since data began in 1963, the Commerce Department reported today in Washington. The median price dropped 13.5 percent, the most in almost four decades. Economists had forecast new-home sales would fall to a 324,000 pace last month from a previously reported 331,000. Projections from a wide variety of economists ranged from 291,000 to 350,000, reports Bloomberg.

Foreclosures drive down the value of surrounding used homes, further complicating appraisals and financing. The Obama administration is making a priority of keeping more Americans in their homes to stem the collapse in property values at the root of the credit crisis. Obama last week introduced a plan to help as many as 9 million people restructure their mortgages to avoid foreclosures. The Treasury Department last week also said it will double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as $200 billion for each company.

The number of new homes for sale at the end of the month fell 3.1 percent to 342,000. The supply of homes at the current sales rate grew to a record 13.3 months’ worth. The National Association of Realtors has said five-to-six months’ supply is consistent with a stable market.

Even as builders are whittling down inventories, the task has gotten more difficult as more and more foreclosures enter the market. This is putting pressure on builders to cut prices even more in order to compete. Foreclosures in the U.S. rose 17.8 percent in January from a year earlier, according to a report from RealtyTrac Inc. issued last week. A total of 274,399 properties got a default or auction notice or were seized by banks, the 10th straight month that foreclosures topped 250,000.

New home sales, which now make up less than 10 percent of the housing market, are considered a timelier indicator than existing sales because they are based on contract signings. Sales of used homes are compiled from closings and reflect contracts signed weeks or months earlier.

The National Association of Realtors yesterday said sales of used homes fell to a 12-year low in January and the median price dropped 15 percent from a year earlier. The Realtors group said distressed properties accounted for about 45 percent of sales.

Toll Brothers, one of the largest luxury homebuilders in the U.S. using a panelized building system, this month said its first-quarter revenue plunged 51 percent.

“The past five months have been among the most difficult in U.S. economic history,” Chief Executive Officer Robert Toll said Feb. 11. Homebuyers are worried they may lose their jobs and won’t be able to sell their existing homes, he said.