Purchases of new U.S. homes unexpectedly declined in February to the slowest pace on record and prices dropped to the lowest level since December 2003, adding to evidence the industry is floundering.
Sales decreased 16.9 percent to a 250,000 annual pace, figures from the Commerce Department showed today in Washington. Economists surveyed by Bloomberg News projected a gain to a 290,000 rate, according to the median estimate. The median price fell 8.9 percent from the same month in 2010.
Builders are struggling to compete with existing homes as foreclosures add to the overhang of unsold properties and drive down values. The figures underscore the Federal Reserve’s view that the housing market “continues to be depressed” even as the rest of the economy improves.
“We’ve got this tug of war going on where we’ve got this very weak housing sector and a manufacturing sector that’s doing fine,” said Brian Jones, an economist at Societe Generale in New York, whose 240,000 forecast was the lowest in the Bloomberg survey. “The new and existing home sales numbers were abysmal. You could say that part of it was attributable to unusually harsh weather.”
Financial markets overreacted to the news Wednesday that U.S. sales of new homes fell about 17% in February to a seasonally adjusted annual rate of 250,000, a record low and quite a bit worse than the 290,000 rate expected by the MarketWatch survey of top forecasters.
As of 11 a.m., an hour after the new-homes sales report was released, U.S. stock markets were down about 0.6%, while U.S. Treasury yields dropped. It wasn’t a huge move, but more than the economic data deserved.
The housing numbers from the Commerce Department are notoriously unreliable on a month-to-month basis and should not be used as the sole reason for any investment decision.
In February, the standard error on the monthly data was 19.1%. That means government statisticians are 90% confident that the real level of home sales in February was somewhere between 192,000 and 312,000. Sales might even have risen in February, for all we know.
What did the sales report tell us that we didn’t already know? Very little. We know home building and home sales are extremely weak. Home builders are depressed. So are many home owners, who owe more than their house is worth. Home prices have been falling modestly since the government’s main effort to prop up the market ended last fall with the expiration of the home buyer subsidy.
It’s possible that the awful sales data show that housing is weakening further, but the other evidence from other sources don’t confirm that. Home builders actually are a little more upbeat than they have been.
Many analysts believe housing has more or less hit bottom and hasn’t come back to any significant degree.
Based on the history of such bubbles, it’s likely to take years before home construction, home sales and home prices recover fully. Nothing reported on Wednesday changes that prognosis.