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Sales of New Homes Rise, Prices Fall

Posted on 25 Mar 2009

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The Commerce Department reported today that new-home sales rose for the first time in seven months during February, another favorable sign for the housing sector, but the data also showed prices tumbled.

Sales of single-family homes increased by 4.7% to a seasonally adjusted annual rate of 337,000, according to the report. January new-home sales plunged 13.2% to an annual rate to 322,000; originally, the government said January sales fell 10.2% to 309,000.

The unexpected increase marked another hint of stability in housing, long suffering from the boom in the early part of the decade. The government last week said home construction in February increased 22.2% to a seasonally adjusted 583,000 annual rate. And realtors this week reported existing-home sales advanced last month.

But year over year, new-home sales were 41.1% lower than the level in February 2008. Sales have fallen because rising layoffs pushed people from making big purchases. As sales drop, inventory stays high. That's pushed down prices. A steady decline in price can, ironically, hurt demand; reluctance to sign on the bottom line tends to grow when a would-be buyer thinks the price might drop significantly in the future. And with increased foreclosures swamping the existing-home market, new homes have been priced out.

The median price of a new home tumbled 18.1% to $200,900 in February from $245,300 in February 2008. The average price decreased 16.7% to $251,000 from $301,200 a year earlier. And prices month over month fell, too; in January 2009, the median price was $206,800 and the average was $239,100.

A glut of unsold houses on the market has forced prices lower. But inventories are coming down. At the end of February, there were an estimated 330,000 homes for sale. That's below the 340,000 for sale at the end of January. The ratio of houses for sale to houses sold dropped to 12.2 from January's 12.9.

Regionally last month, new-home sales increased 6.6% in the West and 9.7% in the South. Sales fell 9.1% in the Midwest and 3.3% in the Northeast.

An estimated 27,000 homes were actually sold in February, up from 23,000 in January, based on figures not seasonally adjusted.