Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.
The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century.
The big drop was a surprise to economists who were expecting a 5 percent increase over December's pace.
"There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that doesn't take away from the fact that the housing sector has taken another big step back, even with the government aid," Jennifer Lee, a senior economist at BMO Capital Markets, said in a research note.
A rebound in housing in the second half of last year helped to boost overall economic growth back into positive territory.
Each new home built, for example, creates about three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.
January's weakness was evident in all regions except the Midwest, where sales posted a 2.1 percent increase. Sales were down 35 percent in the Northeast, 12 percent in the West and almost 10 percent in the South.
The drop in sales pushed the median sales price down to $203,500. That was down 5.6 percent from December's median sales price of $215,600, and off 2.4 percent from year-ago prices.
New home sales for all of 2009 had fallen by almost 23 percent to 374,000, the worst year on record.
The National Association of Home Builders is forecasting that sales will rise to more than 500,000 sales this year, an improvement from 2009 but still far below the boom years of 2003 through 2006 when builders clocked more than 1 million new home sales per year.
The Federal Reserve has been holding down mortgage rates by buying $1.25 trillion in mortgage-backed securities, but that program is set to end March 31.
And temporary tax credits to bolster home buying are scheduled to expire at the end of April.
Federal Reserve Chairman Ben Bernanke told Congress Wednesday that by holding the securities on its books the central bank would continue to help keep mortgage rates low. Economists believe that as long as the Fed owns the securities it will reduce the overall supply and thus help support the price.
Bernanke, delivering the Fed's twice-a-year economic report to Congress, said that the Fed's record low interest rates were still needed to attack high unemployment levels and help the overall economy recover.
According to the Illinois Association of REALTORS® report on Dec 25th, statewide total home sales (which include single-family and condominiums) in December 2009 were up 20.1 percent, totaling 8,197 homes sold compared to December 2008 sales of 6,823 homes, marking the fourth consecutive month of year-over-year sales increases statewide. The median price in December 2009 was $152,000 down 1.9 percent from $155,000 in December 2008. The median is a typical market price where half the homes sold for more, half sold for less.
For the year, Illinois home sales were down just 1.5 percent to 107,503 homes sold compared to 109,195 homes sold in 2008. The year-end statewide median price for 2009 was $157,000, down 14.6 percent from $183,900 in 2008.
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