New home sales fall for fourth straight month, reach 13-year low

WASHINGTON -- Sales of new homes fell in February for the fourth straight month, pushing activity down to a 13-year low. While the rate of decline has slowed, the worst slump in more than two decades has not run its course, analysts said.

The 1.8 percent drop sent the annual sales rate down to 590,000 units in February, the Commerce Department reported Wednesday. That was the slowest pace since February 1995 and down 57.5 percent from the sales peak of 1.389 million units in July 2005.

The median price of a home sold last month dropped to $244,100, 2.7 percent less than the level of a year ago. The median sales price is the point where half the homes sold for more and half for less.

A closely watched gauge of existing home prices, the S&P/Case-Shiller Index, reported Tuesday that 16 of 20 major cities had record annual price declines in January compared with a year ago.

A separate report Monday showed that sales of existing homes posted an increase of 2.9 percent in February, the first gain after six months of declines. Nonetheless, analysts said they do not expect a sustained rebound for many months in the market for resales or new homes, primarily because the number of unsold homes is so high.

The report on new homes showed the number of unsold homes on the market at the end of the month was a 9.8 months' supply at the February sales pace, matching the 26-year high set in January.

Builders have cut construction and offered heavy discounts. Such efforts have been offset by record mortgage defaults, dumping even more homes on the market.

Analysts said buyers' demand remains weak heading into the spring sales season. Among the reasons are difficulty in getting loans because of tighter standards and potential buyers' hesitancy to commit to a purchase in an environment of falling prices.

Sales of new homes dropped the most in the Northeast, by 40.6 percent, and fell 6.4 percent in the Midwest. Sales rose 5.7 percent in the South and 0.7 percent in the West.

On Wall Street, the weakness in housing raised new fears about the overall economy. The Dow Jones industrial average fell 109.74 points to close at 12,422.86.

David Seiders, chief economist at the National Association of Home Builders, said builders have seen an increase in the traffic through model homes, though that has not meant higher sales yet. He said he believed sales would bottom out this spring. The rebound in the second half of the year, he said, will be slow and there could be setbacks.

"It is pretty clear that the market is still eroding," Seiders said. "We are not out of the woods yet and there is still a high degree of danger."

The two-year slump in housing has depressed overall economic growth. The government will provide its last look at economic growth in the final three months of 2007. Many economists believe that report will show the gross domestic product edged up by a barely discernible 0.6 percent from October through December.

Many analysts believe GDP growth may have dipped into negative territory from January through March, which would be the strongest signal yet that the country has slid into a recession.

The worry is that the slumping economy and rising unemployment will make it more difficult for housing to mount a sustained rebound in the second half of the year.

President Bush said Wednesday the slumping economy will "come out stronger than ever before" with the help of the tax rebates from the recently passed $168 billion economic aid plan.

"I fully understand that people are concerned about our economy, but they must understand that this package has yet to full kick in," Bush said during a visit to a printing company in Sterling, Va.

A second report Wednesday showed the manufacturing sector was under more stress. Orders for big-ticket durable goods dropped by 1.7 percent in February, the second consecutive monthly decline.

While demand for commercial aircraft rebounded, orders for motor vehicles fell, demand for machinery plunged by the largest amount on record and a category that tracks business investment declined for a second straight month.

Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said the slump in business investment reflected all the problems factories are facing -- economic uncertainty, tighter credit conditions, rising costs for energy and raw materials.

Analysts said some problems would be offset by continued strong demand for U.S. exports, helped by the weaker dollar, which is making U.S. goods more competitive on overseas markets.