New Home Sales Plunge 16.6%

Washington, DC, February 28, 2007--Sales of new homes plunged 16.6% in January to a seasonally adjusted annual rate of 937,000, the Commerce Department reported Wednesday.

It was the lowest sales pace in four years, and was the biggest percentage decline in 13 years.

Sales are down 20.1% compared with January 2006. New-home sales are down more than 50% year-on-year in the West, the largest percentage drop in the region since 1981.

The decline in sales was much sharper than expected. The median forecast of economists called for sales to fall to 1.08 million annualized.

Sales in December were revised up by 3,000 to 1.123 million, but previous months were revised lower by a total of 65,000.

Economists said sales in December were likely boosted by unusually warm weather during the month. The weather was more mixed in January, with warmer but wetter weather in the first half of the month across the northern tier of the continent.

The inventory of unsold homes dipped to 536,000 from 537,000, representing a 6.8-month supply at the January sales pace, the most since a 7.2-month supply in October. The number of completed but unsold homes rose to 175,000, up 47% from a year earlier.

The median price of a new home was down 2.1% year-over-year at $239,800.

Regionally in January, sales fell a record 37% in the West, 19% in the Northeast, 10% in the South and 8% in the Midwest.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.

The standard error of 12.8% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell. The 16.6% decline in January is statistically meaningful.

It can take up to six months for a trend in sales to emerge. New-home sales have averaged 1.00 million per month over the past six months, compared with 1.01 million in the six months ending in December. The six-month sales average is now down 22% from last January's 1.29 million pace.