Economist's Commentary: March 28, 2008
New Home Sales Decline 1.8 percent in February; Median Sales Price Moves Up
By George Ratiu, Research Economist
Sales of new houses in February were at a seasonally adjusted annual rate of 590,000, according to data released today by the Census Bureau and HUD. The figure represents a 1.8 percent decline from January’s revised number, and a 29.8 percent drop from February last year. Looking at the past three months, the decrease in the volume of new home sales is exhibiting signs of a slowdown.
Nationally, the median sales price of new homes in February was $244,100, up 8.2 percent from January. The median sales price was 2.6 percent lower than February of 2007.
Regionally, gains were recorded in the South and West, where housing starts were up in February 5.7 percent and 0.7 percent, respectively, compared with January. For the same period, housing starts were down 40.3 percent in the Northeast and 6.4 percent in the Midwest.
New home inventory for February was down 2.1 percent from January, at 471,000 units. The figure represents a 13.4 percent decline year-over-year. The supply of new homes is currently at 9.8 months.
Over the past few months, volatile prices and high foreclosure rates have been holding buyers back from new home purchases, contributing to the slide in sales. The high level of new home inventory continues to compete with existing homes, some of which possess better fundamentals.
Declining new home sales should be expected since homebuilders are putting up far fewer homes. The cutback in production is a necessary condition to bring down inventory. In terms of housing demand, a better economic gauge is the existing home sales, which comprise 85 percent of the market. In contrast to new home sales, existing home sales rose in February.
New home sales will likely continue to exhibit softness in the coming months, particularly considering the still high level of inventory. Further cutbacks will likely bring inventory lower to the point where home prices will begin to stabilize and consolidate. February’s increase in the median sales price is a positive sign in that direction.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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