New home sales tumble 11.2%
An unexpected drop in new home sales for the month of January, plus a plunge in mortgage applications to the lowest level in nearly 13 years, have renewed fears of another decline in housing prices.
Economists said the 11.2% tumble from December in new home sales -- the third consecutive monthly drop announced by the Commerce Department -- indicates that Congress’ extension of a home buyer’s tax credit late last year appears to be having little or no effect on consumer sentiment.
Economists surveyed by Bloomberg News had expected January new home sales to climb.
New home sales make up a much smaller share of the buying activity than sales of previously occupied homes. But the data are carefully watched by economists because construction can give a boost to an economy heading out of recession.
Analysts said the January numbers indicated that residential builders were probably in for a tough year as they continue to compete with steeply discounted bank-owned properties and consumers face depleted household incomes and heavy debt loads.
“The housing market is still flat on its back and it is only being held together -- as well as it’s being held together -- by very aggressive actions by the federal government,” said Mark Zandi, chief economist at Moody’s Economy.com.
“The new home builders are going to have trouble competing.”
The drop put the seasonally adjusted estimate of new home sales for 2010 at 309,000 units. That’s the lowest estimate by the Commerce Department, which adjusts the rate monthly, since record-keeping began in 1963.
Comparing the new home sales rate year over year, there was a 6.1% drop from January 2009, when prices nationally were still sinking, financial markets were falling.
“So much for the trend of decent housing news!” Michael D. Larson, an interest rate and housing analyst at Weiss Research, wrote in a note to clients. “January’s new home sales figures were awful across the board. Fewer new homes were sold in this country than at any time since the Kennedy administration.”
David Crowe, chief economist for the National Assn. of Homebuilders in Washington, said he still expected builders to post stronger sales this year than in 2009.
“I do believe in the spring season we will see a pickup because of the good, affordable mortgage rates and very competitive prices and a significant pent-up demand,” Crowe said.
The sales data came as the Mortgage Bankers Assn. in Washington reported separately that applications for mortgages to purchase houses -- new or existing -- fell 7.3% last week.
The group’s purchase applications index has been declining for the last few months and is now at its lowest level since May 1997.
“As many East Coast markets were digging out from the blizzard last week, purchase applications fell, another indication that housing demand remains relatively weak,” said Michael Fratantoni, a vice president at the mortgage group.
The drops in new home sales and purchase applications follow news Tuesday that home prices in 20 metropolitan areas scored a modest 0.3% gain in December -- the seventh consecutive increase, according to the Standard & Poor’s/Case-Shiller index.
Washington policymakers have taken several measures to support the housing market. They have kept interest rates at rock-bottom levels and offered a plentiful supply of mortgages through the Federal Housing Administration.
In November, Congress extended a popular tax credit of as much as $8,000 for first-time buyers through April and expanded it to include a credit of as much as $6,500 for some current homeowners.
“That credit is apparently having no impact whatsoever,” said Patrick Newport, U.S. economist with IHS Global Insight.