Martin Crutsinger, AP Economics Writer
USA Today
WASHINGTON — Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.
The Commerce Department reported Wednesday that new home sales dropped 11.2% last month from December, to a seasonally adjusted annual sales pace of 309,000 units, lowest level on records going back nearly a half century.
The big drop was a surprise to economists who had expected sales would rise about 5% over December’s pace.
The January decline will heighten fears about the fledgling recovery in housing. Economists were already worried that an improvement in sales the second half of last year could falter as various government support programs are withdrawn.
The sales decline in January marked the third straight monthly drop following decreases of 3.9% in December and 9.5% in November.
January’s weakness was evident in all regions except the Midwest, where sales posted a 2.1% increase. Sales were down 35% in the Northeast, 12% in the West and almost 10% in the South.
The drop in sales pushed the median sale price down to $203.500. That was down 5.6% from December’s median price of $215,600, and off 2.4% from year-ago prices.
New-home sales for all 2009 fell almost 23% to 374,000, worst year on record. The National Association of Home Builders is forecasting that sales will rise to more than 500,000 this year, an improvement from 2009 but still far below the boom years of 2003 through 2006, when builders posted more than 1 million new home sales each year.
The unexpectedly large drop in January activity will increase concern that the housing rebound could falter in coming months as the government withdraws the support it has used to try to bolster the housing market, which stood at the epicenter of the country’s overall recession, the worst downturn since the 1930s.
A $1.25 trillion program from the Federal Reserve which has held down mortgage rates is set to end March 31 and tax credits to bolster home buying are scheduled to expire at the end of April.
First-time home buyers could qualify for a credit of up to $8,000 while homeowners who have lived in their current properties at least five years could claim a tax credit of up to $6,500 if they move into another home.
Though the overall economy started growing again this past summer, economists are worried because unemployment remains high. This weakness is causing consumers to shy away spending, especially on big-ticket items such as homes.
The Conference Board reported Tuesday that its Consumer Confidence Index fell almost 11 points to 46 in February, pushing the index down to its lowest reading since last April. At 46, the index is a long way from the 90 reading that economists generally view as depicting healthy consumer attitudes.
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