Credit Commentary

New Home Sales Plunge to Record Low in Jan'10

By Zarana on Thursday, March 04 2010

Sales of new homes unexpectedly plunged to a record low in January as the weak economy and a glut of foreclosed homes continue to weigh on the market.

The seasonally adjusted annual rate of new home sales declined to 11.2% to 309,000 last month, compared with a revised rate of 348,000 in Dec'09. That's a decline 6.1% from January 2009. It was the lowest rate since 1963 and comes after declines in Nov'09 and Dec'09. The government began tracking the numbers in 1963.

Some analyst were expecting a surge in demand because of the tax credit but it seems the tax credit is doing no good to housing market. Congress extended a popular tax credit last year that allows first-time buyers to deduct up to $8,000 from their income taxes and some repeat buyers to get a $6,500 break. The tax credit, which was expanded and extended, is set to expire April 30. It could lead to an upturn in sales in the next couple of months as buyers rush to take advantage of it.

New home sales fell in all U.S. regions except the Mid-west, where sales edged up 2.1%. The Northeast was the hardest-hit last month, with sales plunging more than 35%. The market for new homes remains pressured by a glut of foreclosed properties and high unemployment.

An industry report released earlier this month showed that foreclosures dropped nearly 10% between December and January, while filings rose 15% compared to a year ago. Meanwhile, the U.S. unemployment rate fell unexpectedly in January to 9.7%. But the nation has lost 8.4 million jobs since late 2007, suggesting an economic recovery will be slow and uneven.

The median price of new homes sold in January was $203,500, down from $221,300 in the previous month. The average sale price was $254,500.

Apart from the depressing news from new home sales, faltering demand in the housing market also led to a drop in mortgage applications for both new and existing homes. The Mortgage Bankers Association's seasonally adjusted purchase index fell 7.3% for the week ended Feb. 19 from the prior week, the advocacy group that represents the real-estate finance industry said Wednesday. It is the index's lowest level since 1997.