New Home Sales Hit Record Low in February

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Yesterday, I reported that existing home sales had declined for three straight months. Today, we learn that the news isn't any better for new home sales. In fact, it's worse according to the Commerce Department. In February, new home sales declined for the fourth straight month, falling by 2.2%. Again, this highlights the theme that buyer demand is quite weak, especially for new homes.

First, here's a chart of home sales since January 2009:

new home sales 2010-02.PNG

Numbers are seasonally adjusted. And here's a nice one provided by the Commerce Department that goes back further, to get the big picture:

new home sales commerce 2010-02.gif

The 308,000 annualized rate of new home sales for February is just a small fraction of total home sales, as yesterday's report indicated approximately 5 million annualized existing home sales. It's also the lowest number of monthly annualized new home sales as far back as the Commerce Department's data goes -- since 1963. In fact, prior to 2010, no month's annualized rate ever fell below the 325,000 mark. January's rate of 315,000 was a new low until February. To give you some idea of the historical perspective, the annualized rate of home sales for 1963 was 560,000.

There's not much good news here, but anyone trying to be optimistic might note that the 2.2% decline in February was the smallest drop since October. So there's some possibility that the decrease in new home sales might be settling around the 300,000 annualized rate. Of course, the home buyer credit's expiration in April could also help boost sales for the next two months.

Interestingly, months of supply of new homes are fewer than they were a year ago. In February 2010, there were 9.2 months of supply of new homes, compared to 11.1 months of supply a year ago. This might seem counterintuitive, considering fewer new homes are selling now. But this likely indicates that new home construction has declined to help push down the market's supply, despite even weaker sales. But construction hasn't slowed enough, as months of supply have been increasing since October, when it hit a low of 7.3 months.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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