New home sales still weak
Government report shows slight pick-up in new home sales, but demand remains much weaker than year-ago levels.
NEW YORK (CNNMoney.com) -- New home sales rebounded a bit in March from depressed levels in February but still fell short of forecasts, according to the government's latest report, signaling ongoing weakness for the battered real estate market.
New homes sold at an annual pace of 858,000 homes in March, up from the 836,000 pace in February, which was revised lower.
The March reading was down 23 percent from March 2006 and was the second weakest sales pace in the Census Bureau report since September 2001, behind only the February reading.
Economists surveyed by Briefing.com had forecast that sales would come back to an annual rate of 890,000 in March.
Mike Larson, a real estate analyst at Weiss Research, said that he believes weather helped to inflate the sales numbers slightly in Wednesday's report.
"New home sales reportedly exploded by 50% in the Northeast region between February and March. In less weather-sensitive regions, sales were down slightly; down 2.7 percent in the South and off 0.9 percent in the West."
The glut of new homes on the market was little changed, creeping up by 1,000 to a seasonally adjusted 545,000. That equates to a nearly eight-month supply of new homes for sale at the current level of demand.
"It will take even-deeper construction cuts, lower prices, and more incentives to get supply more closely aligned with the reduced level of demand," Larson said. "I'm not expecting a lasting recovery until sometime later in 2008."
The median price for a new home sold in March was $254,000, jumping 6.3 percent from the price of typical new home sold a year earlier.
But the price reading could be inflated, as a survey by the National Association of Home Builders has found about three out of every four builders are offering incentives such as paying closing costs or offering items in the home for free in order to maintain sales in the current weak market.
The same survey has found many home builders already reporting a drop in demand due to problems in the subprime mortgage market. Lenders have started to tighten underwriting standards in the face of rising defaults and delinquencies.
The report on new home sales follows a report by the National Association of Realtors Tuesday that showed the sharpest drop in existing home sales in 18 years in March, along with a continued slide in home prices.
Sales of new homes constitute only a fraction of the overall real estate market, but new home sales are more of a leading indicator because they are recorded at the time a contract is signed, rather than when a sale is closed a month or two later, as the existing home sales figures are tabulated.
A separate report Wednesday showed mortgage foreclosure filings climbing 27 percent in the first quarter compared with the fourth quarter of 2006 and 35 percent from a year earlier.
The weakness in home sales and revenue has hit the results of the nation's leading home builders. Earlier this month No. 2 home builder D.R. Horton (Charts, Fortune 500) reported a 37 percent drop in the number of new homes it sold in the latest quarter, citing continued weakness in prices and saying the typical start to the spring home buying season hasn't begun.
While Horton is expected to still report a profit for the period, No. 4 builder Pulte Homes (Charts, Fortune 500) reported a loss in its latest quarter as did No. 3 Centex (Charts, Fortune 500) and New Jersey-based Hovnanian Enterprises (Charts, Fortune 500).
No. 1 home builder Lennar (Charts, Fortune 500) and No. 5 KB Home (Charts, Fortune 500) both reported losses in their quarters ending in November, although both returned to an operating profit in the next quarter. The CEO of KB Home said earlier this month that he expects the housing slump to get worse.