Tax credit can’t halt decline to 309,000 annual pace in January
WASHINGTON (MarketWatch) — Sales of new U.S. homes plunged 11.2% in January to a seasonally adjusted annual rate of 309,000, the lowest rate on record dating back to 1963, the Commerce Department estimated Wednesday.
The third-straight drop in sales on a month-to-month basis was unexpected. Economists surveyed by MarketWatch forecast sales to rise slightly, to a pace of 355,000, with buyers taking advantage of a new federal tax credit. Read our complete economic calendar and consensus forecast.
“The housing market remains very, very distressed,” wrote Dan Greenhaus, chief economist for Miller Tabak & Co.
“There may have been some weather-related issues playing havoc with the sales data but clearly, these results are extremely unnerving,” wrote Jennifer Lee, an economist for BMO Capital Markets. “There is nothing positive to glean from this report.”
U.S. stock markets fell after release of the report, which coincided with release of congressional testimony by Federal Reserve Chairman Ben Bernanke, who said the economy remains fragile and needs low interest rates for an extended period of time. Read our complete story on Bernanke’s testimony. See our complete story on Bernanke’s testimony.
Data on sales for December were revised higher to a seasonally adjusted annual rate of 348,000, up from 342,000 previously reported.
Sales of new homes are down 6.1% compared with January 2009’s 329,000 units, which was the previous record low.
The number of homes for sale rose 0.4% to 234,000 in January. At the January sales pace, it would take 9.1 months to sell that inventory, up from 8.0 months in December and the highest monthly supply since May.
Government statisticians have low confidence in the monthly report, which is subject to large revisions, and large sampling and other statistical errors.
In most months, the government isn’t sure whether sales rose or fell. The standard error in January for instance, was plus or minus 14%. Read the full government report.
The government says it can take up to five months to establish a statistically significant trend in sales. Over the past five months, sales have been on a 362,000 seasonally adjusted annual pace, down from 382,000 in the five-month interval through December.
Sales had risen fairly steadily in the first half of 2009 before plateauing last fall. Seasonally adjusted sales have now fallen three months in a row.
With mortgage rates still very low and prices down, most analysts had concluded that the recent decline in sales was due to the impending expiration of the first-time homebuyers’ credit in November.
As it happened, Congress extended the tax credit through June and expanded it to include repeat buyers. But the tax credit didn’t help sales in January.
Sales of new homes are recorded once a sales contract is signed, not at closing. Some homes are sold before ground is broken on construction.
Home builders had been slashing their inventory of unsold homes for more than a year to a 38-year low before January’s 1,000 increase. The number of homes for sale that are under construction fell to a record low of 100,000.
Builders have cut back on production of new homes, but they still face headwinds from unsold existing-homes as foreclosures continue to mount up.
If a home isn’t sold before it’s finished, it’s taking a record 14.2 months to sell it after completion — a reflection of the mismatch between more expensively priced homes in the inventory and lower-priced homes that have been selling.
The median sales price of a new home sold in January was $203,500, down 2.4% compared with a year earlier. Cheaper homes were selling better than expensive ones: 47% of sales were for less than $200,000, up from 43% in December. Meanwhile, 38% of sales were for $200,000 to $400,000, down from 41% in December.
Sales were down in three of four regions: down 35% in the Northeast, down 12% in the West and down 10% in the South. January’s sales were up 2% in the Midwest, the government’s data showed.
Rex Nutting is Washington bureau chief of MarketWatch.
By Rex Nutting
Feb. 24, 2010, 11:13 a.m. EST