At long last, a new home sale slump
Sales in February drop more than expected, as median price falls and supply grows. Is the real estate bubble bursting?
NEW YORK (CNNMoney.com) - New home sales fell more sharply than expected in February -- and along with them, the price of a new house -- in the latest signs of a slowdown in what had been a white-hot housing market.
Sales sank 10.5 percent to an annual rate of 1.08 million homes in February, from the revised rate of 1.21 million in January, the Census Bureau reported.
The report also showed a drop in the median price of a new home from a year earlier, to $230,400, down $6,900, or 3 percent from February 2005. Half of all homes sold for more than the median and half for less.
While it's not uncommon that prices fluctuate month to month, a year-over-year decline is far less common. February also marked the fourth straight month-over-month decline in median price since the record of $243,900 in October. The current median is 5.5 percent below that record.
Economists surveyed by Briefing.com had forecast that new homes would sell at a 1.21 million pace in the most recent period, but that would have been down from the previously reported 1.23 million pace the month before.
Robert Brusca of FAO Economics said it's not too soon to wonder if there has been a bursting of the so-called "housing bubble" of recent years, when prices and sales kept rising.
"How can you look at these data and ignore the question?" he asked rhetorically. "We had such a dramatic fall in the West," he added, where sales fell almost 30 percent.
"If there's a bubblicious market, that's the one, the one that had the highest prices. And while you can say all housing markets are local, but it's clear there have been factors that helped all the different markets, so it would be folly to say that couldn't reverse."
Part of the softness in prices could stem from a jump in the number of new homes on the market -- 544,000 new homes were up for sale last month, up about 24 percent from a year earlier.
Some were under construction or not even started, but the supply of completed homes for sale also climbed to 123,000, up 15 percent from a year earlier, and up 12 percent from just four months ago.
"That's a problem. You don't move those completed homes that easily," said Brusca.
About one home builder in five has reported an increase in the number of cancelled orders for new homes, according to a recent survey of the National Home Builders Association.
The decline in sales was not evenly spread across the country.
The West saw a 29.6 percent drop, while the South saw sales fall 6.4 percent, as the two country's two hottest regions for housing slowed. Sales in the Northeast and Midwest gained, but between them those regions accounted for less that a quarter of the nation's new home sales last year.
Dave Seiders, chief economist for the National Association of Home Builders,. said the drop reported in the West is so much greater than expected that he questions whether it's a statistical quirk. Some recent changes in sampling by the Census Bureau could be a factor in the decline in median home prices, he added.
"I don't know of anything that would have provoked a 30 percent month-to-month decline," he said. "If that's revised, it would have an influence on the national number."
But while Seiders believes home prices are still showing year-over-year gains in most markets, he didn't deny there is some softening and a rise in unsold homes on the market.
"Undoubtedly the direction is down," he said about the direction of new home sales.
In one of the only signs of strength in the report, the average price, which is inflated by the price of homes at the top of the market, rose 2.6 percent from a year earlier to $296,700.
A separate report from the National Association of Realtors on Thursday showed an unexpected gain in the sales of existing homes in February. But new home sales, while only a fraction of the overall real estate market, are more closely watched because they're seen as more of a leading indicator.
Existing home sales are reported when a sale closes, generally a month or two after there is a sales agreement, while new home sales are recorded when a sales contract is signed, which can come months before a closing.
For a look at rising concerns about cancelled new home orders, click here.
For more on the real estate market and what it means for you and the economy, click here.