Wednesday, February 28, 2007
Annual pace, below 1 million, posts biggest monthly decline in 13 years; rising glut of homes for sale hits prices.
NEW YORK (CNNMoney.com) -- New home sales saw their steepest plunge in 13 years in January, a government report said Wednesday, as a rising glut of new houses on the market pushed prices lower.
New homes sold at an annual rate of 937,000, down 16.6 percent from the December reading of 1.1 million. Economists surveyed by Briefing.com had forecast only a narrow drop to a 1.08 million pace.
The decline in sales hit every region of the country, from a 8.1 percent drop in the Midwest to a 37.4 percent dive in the West. The South, which accounts for more than half of the nation's new home sales, saw January's pace off nearly 10 percent compared to December.
The percentage decline was biggest for a single month in 13 years, since the record 23.8 percent decline seen in January 1994. It is also the sixth largest one-month fall on record.
"Let's cut to the chase - these numbers were ugly," wrote Mike Larson, real estate analyst at Weiss Research in Jupiter., Fla. "While the month-to-month changes in new home sales figures can be volatile, the magnitude of the decline is impressive.
"This speaks volumes about the ongoing weakness in the housing sector. Inventories remain elevated. Housing affordability remains low, historically speaking," Larson continued. "And now, mortgage lending standards are tightening. All of this bodes ill for the 2007 spring selling season. I don't expect a true, lasting rebound in housing until at least 2008."
David Seiders, chief economist for the National Association of Home Builders, said that the sharp drop in January might have been fed by stronger-than-expected sales in November and December, when much of the country had unseasonably warm weather. The new home sales are recorded at the time a sales contract is signed, rather than when the sale is closed.
"I sort of always knew that late last year our numbers were boosted by unusually warm weather and we paid some of that back in January," said Seiders. But he also conceded that the report showed continued and widespread weakness, despite hopes late last year that the market could be stabilizing.
"It's obvious the market has not lifted off the ground yet," he said.
The January sales pace is the lowest since February 2003, before the start of the building boom that flooded the market with new homes available for sale and put downward pressure on prices and builders' earnings.
The median price of a new home fell 2.1 percent from a year earlier to $239,800, although that was $400 above the December price level. Median is the point at which half the homes sell for more and half sell for less.
The latest median price is down 6.7 percent from the record high reached in April 2006. And the report doesn't capture all the decline in pricing power for builders, since a majority of them are offering extra features at no additional cost, agreeing to pay buyers' closing expenses and other incentives to move houses.
The prices have seen downward pressure from the glut of completed homes on the market available for sale. The report shows a record 175,000 completed homes for sale in January, the eighth straight month that reading has risen to a record level.
The median time it takes a completed home to sell now stands at 4.8 months, the longest wait for builders since July 2001, when the nation was in a recession.
While builders have trimmed the pipeline of new homes under construction and available for sale, the supply of all new homes available for sale stands at 7.7 months, up from a 6.9 month supply in December.
Home builders have been particularly hard hit by the downturn in home sales and home prices. Hovnanian Enterprises (Charts) said Tuesday it expects to report a net loss in the most recent quarter. Toll Brothers (Charts) reported a sharp drop in earnings last week, while KB Home (Charts) reported a net loss in the most recent quarter earlier this month.
The slowdown in housing has also hurt some major home improvement retailers. Earlier Wednesday, Home Depot said it doesn't expect a recovery in home building and real estate until late 2007 or early 2008, and it warned that its sales and earnings would miss forecasts as a result.
Other economic readings suggest that the weakness in new home sales and prices are being seen in the broader real estate market as well.
On Tuesday, the National Association of Realtors' report on existing home sales showed the sixth straight month of a year-over-year decline in median price, even as the pace of sales picked up slightly.
That trade group's report on fourth quarter sales and prices in the nation's various metropolitan areas also reported the most widespread and deepest decline in prices on record.