New Home Sales Plunge to '63 Levels

Sales of new single-family homes plunged last month, underscoring the fragility in the housing market.

Sales dropped 11.2% in January from a month earlier to a seasonally adjusted annual rate of 309,000, the Commerce Department said Wednesday. The decline brought sales to their lowest level since the government began tracking the numbers in 1963. Sales were 6.1% lower than in January 2009.

This gauge of new-home sales is particularly volatile because it is based on a very small sample size and carries a wide margin of error. Still, the sharp decline is an indication that the housing market remains feeble, despite improvements in the past year fueled by low mortgage rates, reduced home prices and a government tax credit for home buyers.

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, analysts say.

U.S. home builders have sounded more optimistic in recent months, convinced they have survived the worst of the housing downturn. Several companies reported narrower losses for the latest quarter and have said cancellation rates are down. Many buyers who had signed contracts for new homes dropped those orders during the during the housing crash.

"I would say the market is in transition," said Richard Dugas, chief executive of Pulte Homes Inc., the nation's largest builder, at a conference this week. "In 2009, we did see some areas of improvement, particularly as it relates to '08, and there is clearly going to be opportunities in 2010, along with continued risk to go along with it."

The drop in sales in January triggered an increase in the backlog of unsold new homes on the market, pushing it up to the equivalent of what would normally be sold in 9.1 months versus eight months in December. And the abundance of homes on the market continued to bring prices down. The median sales price for new homes fell 2.4% to $203,500 in January, compared with a year ago.

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.

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