New-home sales in January drop 12.6%

WASHINGTON — Sales of new homes fell significantly in January, a dismal sign after the worst year for that sector in nearly a half-century.


New-home sales dropped to a seasonally adjusted rate of 284,000 homes last month, the Commerce Department said Thursday. That's down from 325,000 in December and less than half the 600,000-a-year pace economists consider healthy.


Bad weather likely hampered some sales, although the industry has been struggling since the housing bubble burst in 2006.


Last year was the fifth consecutive year that new-home sales have declined after hitting record highs during the housing boom. Buyers purchased 322,000 new homes last year, lowest annual total on records going back 47 years. Economists say it could take years before new-home sales return to a healthy pace.


Builders are struggling to compete in markets saturated by foreclosures. High unemployment and uncertainty over home prices have kept many potential buyers from making purchases. 


Poor sales of new homes mean fewer jobs in construction, which normally powers economic recoveries. On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.


New-home sales were uneven across the U.S. In January, sales fell 36.5% in the West and 12.8% in the South. But they rose 17.1% in the Midwest and 54.5% in the Northeast.


The big declines in the West came after a huge increase in December. Buyers had rushed to take advantage of a state tax credit of up to $10,000 on new home purchases in California at the end of the month, said Joshua Shapiro, chief U.S. economist for MFR.


"A surge in such activity took place in California during December, and there was payback in January," he said.


Sales of previously occupied homes have not fared much better. While sales rose slightly last month, the seasonally adjusted annual pace of 5.36 million is still far below the 6 million homes a year needed to maintain a healthy market.


Mortgage applications are near their lowest levels in 15 years.


The average rate on a 30-year fixed mortgage this week dipped to 4.95% from 5%,Freddie Mac said Thursday. It hit a 40-year low 4.17% in November, and has been trending upward since.


About 188,000 new homes were for sale at the end of January, fewest since 1967. The number of homes that have received permits to begin construction has held steady the past year while the number under construction and finished have plummeted.

The median sale price of a new home sold in January was $230,600, down 1.9% from the month before. Given the pace of new-home sales, it would take nearly 8 months to clear them off the market. Economists say a six-month supply is healthy.