New home sales tumble to record low

NEW YORK (CNNMoney) -- New home sales fell 16.9% in February, to the lowest level since the government began keeping records in 1963, as the reeling housing market failed to generate any momentum.

Sales fell to an annual rate of 250,000 from the revised 301,000 in January, according to the Census Bureau's monthly report released Wednesday. The rate was down a whopping 28% from the 347,000 of February 2010.

"We've been running at a very low level," said John Canally, an economist with LPL Financial, a Boston-based financial adviser.

The release followed Monday's downbeat report on existing home sales, which fell 9.6% month-over-month.

"New home sales are even more crucial to the nation's economy," said Canally "It's the new home sales that actually drive economic activity and contribute to GDP."

New home builders hire construction workers and buy building materials from domestic sources, contributing much more to the economy than people just trading one existing home for another.

Particularly bad winter weather this year probably added to market woes. Sales dropped precipitously in the Northeast and Midwest, which experienced some frigid and snowy days during the month. Sales, though, were down across the board, falling in all four regions.

A better sign for the market was the number of new homes in inventory. That remained at 186,000 in February, a 40-year-plus low, according to Canally and only about a third of the number of new homes on the market during the peak months off 2006.

The drop is a positive but limited sign for the market. New homes compete with existing ones for buyers and there's still a big inventory overhang of those. In addition, there's a "shadow inventory" of foreclosed homes repossessed by banks and not yet put back on the market.

"One of the biggest detriments to building new homes is the flow of existing foreclosed homes," said David Crowe, chief economist for the National Association of Home Builders (NAHB).

Right now, there does not seem to be any reasons to think that new home sales will recover anytime soon. The builders certainly are not optimistic.

The widely used gauge of builder confidence, the NAHB/Wells Fargo Housing market index, stood at 17 this month. That was up from single digit levels of two years ago, but still well below the 50 mark. When it is below 50, more builders rate market conditions as poor than as good.