January New Home Sales Plummet 16.6%
Courtney Schlisserman

Feb. 28 (Bloomberg) -- New-home sales in the U.S. fell last month by the most in 13 years, pointing to more weakness in the real-estate market that limited economic growth last year.

The 16.6 percent decrease to an annual rate of 937,000 in January, a pace that was less than any economist had forecast in a Bloomberg News survey, followed 1.123 million in December, Commerce Department figures showed today. The pace of sales was the slowest since February 2003. A measure of housing inventory rose to the highest in three months.

The figures suggest residential construction will remain a drag on the economy and that lower home prices may be needed to stir buyer interest. The decrease in January was exaggerated in part by the return of colder weather after warmer temperatures in the prior month.

``Some of this is weather-related, however having said that, this housing recession is going to go on at least for another six months or so,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts.

Treasury securities initially pared losses after the report, before resuming their decline. The benchmark 10-year note fell 5/16 point, pushing up the yield almost 4 basis points to 4.55 percent at 10:21 a.m. in New York.

The January decrease in sales was the largest since a 23.8 percent plunge in January 1994. Economists forecast new home sales would fall 3.6 percent to a 1.08 million rate, from a previously reported 1.12 million for December, according to the median of 69 projections in a Bloomberg News survey. Estimates ranged from a 1 million pace to 1.16 million.

Weather Effect

Weather that was warmer-than-average in December helped to boost sales that month and may have had the opposite effect on the figures in January as winter storms gripped parts of the country at month's end, economists said.

Earlier today, the government reported the economy expanded at a 2.2 percent annual rate in the fourth quarter, revised down from the 3.5 percent pace estimated in its advance report last month. Home construction subtracted 1.16 percentage points from gross domestic product.

The median price of a new home fell 2.1 percent in January, to $239,800 from $244,900 a year earlier. A report yesterday from S&P/Case-Shiller showed U.S. home prices rose 0.4 percent in the fourth quarter of 2006 compared with the same three months a year earlier, the smallest gain since the second quarter of 1993.

Housing Inventory

Today's report showed the number of homes for sale at the end of the month fell to 536,000, from 537,000 in December. That left the supply of homes at the current sales rate at 6.8 months' worth, the highest since October, compared with 5.7 months. The number of homes completed and awaiting a buyer increased to a record 175,000 last month.

While builders are offering more incentives to unload homes already built, the actual number of homes in inventory may be more than the government reports because it doesn't include cancellations, economists said.

``The inventory situation is undoubtedly worse than reported,'' Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said in a note to clients. ``Builders will probably have to continue to work off bloated stocks of finished homes for most of 2007.''

Hovnanian Enterprises Inc., based in Red Bank, New Jersey, said yesterday that home contracts fell 23 percent and its order cancellation rate was 36 percent during its fiscal first quarter.

Fourth Quarter

Residential construction fell at an annual rate of 19.1 percent in the fourth quarter, the Commerce Department said earlier today. Homebuilding probably will subtract from growth this year as builders continue to limit construction this year to avoid another swell in inventories, economists said.

Compared with a year earlier, new-home sales for January were 20 percent, the government said.

Sales fell in all regions in January, led by a 37.4 percent slump in the West to an annual rate of 166,000, the lowest since March 1995. Purchases declined 18.7 percent in the Northeast to an annual rate of 61,000; fell 9.7 percent in the South to 529,000; and dropped 8.1 percent in the Midwest to 181,000.

The National Association of Realtors reported yesterday sales of existing homes, which make up 85 percent of the housing market, rose 3 percent last month, more than economists forecast. Compared with a year earlier, sales were down 4.3 percent.

Timely Barometer

New-home sales are considered a more timely barometer of the housing market because they are recorded when a contract is signed. Most sales of existing homes are counted when a contract closes, usually a month or two later.

``There are too many soft markets at this stage of the selling season to call a general upturn in the new home market,'' Toll Brothers Inc. Chief Executive Officer Robert Toll said in a statement on Feb. 22. ``Demand varies greatly from week to week in individual markets.''

Toll, the largest U.S. luxury-home builder, said profit fell 67 percent in the first quarter because of a drop in the value of the company's land. It also reduced its forecast for the number of homes it will sell this year.

Federal Reserve Chairman Ben S. Bernanke and other policy makers have forecast that the worst of the housing market slump is over, even as builders express caution.

``The U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,'' Bernanke told lawmakers Feb. 14 during his semi-annual monetary policy testimony.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Sources: Bloomberg , NY Times, The Street, Market Watch