New-Home Sales Plummet

March 24, 2006 — -- New data from the government show that sales of new homes during February were anemic. Buyers signed contracts at a rate of 10.5 percent below January's pace -- the largest one-month drop in almost nine years.

The Commerce Department says that new-home sales happened at a seasonally adjusted annual rate of 1.08 million during February, well below the expected 1.21 million pace. The report also showed a downward revision of January's number: 1.200 million, down from the original 1.233 million.

The median price of a new home has fallen for four months in a row. In February, the median price was $230,400, down about 5.5 percent from the peak price set in October 2005.

What's all this mean? The days where you see home builders in unemployment lines may be close at hand.

"[The figures] fell in the largest markets, and where they fell, the bottom dropped out," said Robert Brusca, chief economist at FAO Economics, in a prepared statement. "In the West, sales plunged by 29.4 percent, a figure so large it is hard to believe. In the South, sales fell by 6.4 percent. These are the two biggest markets."

What's really worrisome to most housing industry analysts is that inventories of new homes for sale are at their highest point since January 1996. Today's report shows that builders could fill orders for new homes for 6.3 months without hammering another nail.