New-Home Sales Plummet
To Lowest Level in Four Years

Sales of new homes plunged 16.6% in January to a seasonally adjusted annual rate of 937,000, the Commerce Department reported Wednesday.

It was the lowest sales pace in four years, and was the biggest percentage decline in 13 years.

Sales were down 20.1% compared with January 2006. Read the full report.

The decline in sales was much sharper than expected. The median forecast of economists surveyed by MarketWatch was a drop to 1.08 million units, annualized. See Economic Calendar.

Sales in December were revised up by 3,000 to 1.123 million homes, but previous months were revised lower by a total of 65,000.

Economists said sales in December were probably boosted by unusually warm weather during the month. The weather was more mixed in January, with warmer but wetter weather in the first half of the month across the northern tier of the continent.

The inventory of unsold homes fell to 536,000 from 537,000, representing a 6.8-month supply at the January sales pace, the highest since a 7.2-month supply in October. The number of completed but unsold homes rose to 175,000, up 47% from a year earlier.

The median price of a new home was down 2.1% year-over-year, at $239,800.

In other reports, the Commerce Department said gross domestic product grew at a 2.2% annual pace in the fourth quarter, much weaker than the 3.5% originally estimated. Core inflation was revised lower. See full story.

The economy worsened in the Chicago region in February. The Chicago purchasing managers index fell to 47.9%.

Regionally, January sales fell a record 37% in the West, 19% in the Northeast, 10% in the South and 8% in the Midwest. Sales in the Midwest exceed sales in the West.

Most of the pain has been felt in the largest markets: the West and South. New-home sales are down more than 50% year-on-year in the West, the largest percentage drop in the region since 1981. In the South, sales are down 11% in the past year. Sales are down 2% in the Northeast and are up 1% in the Midwest.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives aren't subtracted from the sales price reported to the government.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations aren't reflected in the government data, so the reported sales are probably overstated.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.

The standard error of 12.8% is so high, in fact, that the government can't be sure in most months whether sales rose or fell. The 16.6% decline in January is statistically meaningful.

It can take up to six months for a trend in sales to emerge. New-home sales have averaged 1.00 million per month over the past six months, compared with 1.01 million in the six months ending in December. The six-month sales average is now down 22% from last January's 1.29 million pace.

On Tuesday, the realtors reported that sales of existing U.S. homes rose 3% to a seasonally adjusted annual rate of 6.46 million in January, the highest sales pace in seven months. Median prices were down 3.1% year-on-year. See full story.

Also on Tuesday, Standard & Poor's said national home prices fell 0.7% in the fourth quarter, the fastest decline in 14 years. In the past year, home prices are up 0.4%, according to the Case-Shiller index, which compares sales of the same homes over time. See full story.

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