Wednesday March 26, 09:12 PM
US new home sales drop, but prices pick up
By Justin Cole
WASHINGTON (AFP) - Sales of new homes across the United States fell again in February as the property market remained mired in one of its worst downturns in decades, a government report showed Wednesday.
The Commerce Department said in a monthly snapshot that new home sales declined by 1.8 percent to a seasonally adjusted annual rate of 590,000 properties.
Most economists had expected sales to fall, but January turnover was revised higher to a sales pace of 601,000 units.
New home sales have tumbled a dramatic 29.8 percent in the past 12 months as a multiyear slump continues to deflate the American residential property market despite sustained Federal Reserve interest rate cuts.
The Fed has slashed US rates since September, partly in a bid to revitalize the ailing home market.
Although sales fell, prices increased in February from a month earlier suggesting that recent price declines might be luring new home buyers back into the market.
"There are still too many houses sitting out there but progress is being made. Interestingly, the median price rose in February though it is down almost three percent over the year," said Joel Naroff, president of Naroff Economic Advisors.
The median price of a new home increased 8.2 percent from a month earlier to 244,100 dollars while the average sales price climbed 4.9 percent for the month to 296,400 dollars.
The ongoing drop in sales continues to pressure builders' inventories of unsold new homes.
The government survey showed that the new home market has a 9.8 month supply of homes at the current sales clip, meaning it would take that time to clear the unsold volume of new properties languishing on the market.
The glut of homes on the market has swelled to heights not seen since the early 1980s and has risen markedly in the past year as the property slump has worsened.
The US central bank has trimmed its key short term interest rate to 2.25 percent in a bid to shore up home sales and wider economic momentum. Fed policymakers have slashed the federal funds rate from 5.25 percent since September as a credit squeeze has deepened the economic malaise.
"The housing market may not be at its bottom but with upward revisions to the data occurring and mortgage applications for purchases rising, there are hopes that the worst is largely behind us," Naroff said.
Home sales have been weighed down further as tens of thousands of home owners have seen their properties repossessed by banks as they have failed to keep up with their mortgage payments.
Resulting foreclosures have weakened prices in some areas and increased the number of overall properties on sale. The new home market is smaller than the market for existing homes.
The latest sales report revealed a mixed picture across the country.
Sales declined in the northeast and midwest, but improved in the south and west.
Home builders, some of which have gone out of business or seen their finances ravaged by a two year market downturn, have cut the prices on many developments in a bid to boost sales.
Some developers are also offering potential purchasers tantalizing incentives such as plasma televisions and gym memberships if they sign sales contracts.
"Sellers continue to aggressively price and market new homes. Provided financial markets stabilize, we are expecting their efforts to pay off with new home sales turning around about the middle of this year," said Patrick Newport, an economist at Global Insight.
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