New-home sales fell 16.9% last month to a seasonally adjusted annual rate of 250,000 homes, the Commerce Department said Wednesday. It's the third straight monthly decline and far below the 700,000-a-year pace that economists view as healthy.
New-home sales now account for just 5% of total home sales so far this year. They typically represent closer to 15% in healthier housing markets. There were just 186,000 new homes available for sale in February, the lowest inventory in more than four decades.
The median price of a new home dropped nearly 14% to $202,100, the lowest since December 2003. The median is now 30% higher than the median price of resold homes — twice the typical markup.
In response, homebuilders are cutting their selling prices and building more inexpensive homes, pushing down sales prices. They are struggling to compete with a wave of foreclosures, which has lowered the price of previously occupied homes. High unemployment, tight credit and uncertainty over prices have also kept many potential buyers from making purchases.
"Falling housing prices of existing homes are robbing demand for new houses and until that changes, the housing market will be in trouble," said Yelena Shulyatyeva, an analyst at BNP Paribas.
Last year was the fifth straight year of declines for new-home sales after they reached record highs during the housing boom. Economists said it could take years before sales returned to a healthy pace.
Poor sales of new homes mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home creates an average of three jobs for a year and $90,000 in taxes, according to the National Association of Home Builders.
Many builders are waiting for new-home sales to pick up and for the glut of foreclosures to be reduced. But with 3 million foreclosures forecast this year nationwide, a turnaround isn't expected for at least three years.
"We fully expect further price declines in order to help clear inventory from the market although this problem is more acute in the existing home market than the new home market," said Dan Greenhaus, chief economic strategist for Miller Tabak + Co.
Homebuilders have taken notice. Residential construction has all but halted. Builders broke ground last month on the fewest homes in nearly two years. And building permits, a gauge of future construction, sank to their lowest in more than 50 years.
By contrast, sales of previously occupied homes have fallen by a more modest 3% in the past year. Prices have dropped more than 5%. In February, the median price for a resale was $156,100, according to the National Association of Realtors.
New-home sales fell to record lows last month in almost every region of the country. Sales dropped 57.1% in the Northeast, 27.5% in the Midwest, 14.7% in the West and 6.3% in the South. Those are record lows in each region except the West, which recorded its lowest sales pace in October.
Harsh winter weather that dumped record amounts of snowfall over much of the Northeast and Midwest, along with rare snowstorms in Texas, had an impact on February sales.
Given the pace of new-home sales, it would take nearly 9 months to clear them off the market. Economists say a six-month supply of homes is healthy.