New-home sales drop to slowest pace since '91

WASHINGTON -- Sales of new homes plunged last month to the slowest pace in 16 ½ years as a two-year housing downturn extended into the start of another spring sales season. The median price of a new home in March compared with a year ago fell at the fastest clip in 38 years.

Sales of new homes dropped by 8.5 percent last month to a seasonally adjusted annual rate of 526,000 units, the slowest sales pace since October 1991, the Commerce Department reported Thursday.

The median price of a home sold last month dropped by 13.3 percent compared with March 2007, the biggest year-over-year price decline since a 14.6 percent plunge in July 1970.

Because Seattle-area home-sales numbers aren't broken down into new and existing sales, no comparable numbers are available locally.

The dismal news on new-home sales followed earlier reports showing sales of existing homes fell by 2 percent last month. Housing, which boomed for five years, has been in a prolonged slump for the past two years with sales and home prices falling at especially sharp rates in formerly booming areas of the country.

Some analysts said the slide in sales may be close to ending although they said any rebound is likely to be slow and anemic with prices continuing to fall, possibly until this time next year.

Earlier this week, the National Association of Realtors reported that sales of existing homes also fell last month, dropping by 2 percent, with prices declining on a year-over-year basis by 7.7 percent.

"The start of the spring homebuying season is turning out to be a bust," said Stuart Hoffman, chief economist at PNC Bank in Pittsburgh. "It is much better to be a buyer than a seller right now."

Hoffman said he thought sales would stabilize by this fall but that prices could keep falling until the start of the 2009 spring sales season. Prices are being depressed by the continued huge inventory of unsold homes -- a backlog that reflects rising numbers of mortgage defaults, which are dumping more homes on an already glutted market.

For March, sales were down in all regions of the country, dropping the most in the Northeast, a decline of 19.4 percent. Sales fell by 12.9 percent in the West, 12.5 percent in the Midwest and 4.6 percent in the South.

The overall drop in new-home sales was much bigger than expected and the size of the declines in many regions of the country also took economists by surprise.

"Every region shared in the carnage," said Joel Naroff, chief economist at Naroff Economic Advisors. "These are not soft numbers. They are Depression numbers."

Still, economists said the extend of the downturn may be signaling that at least in terms of sales, things may start looking up by this summer or by the latest, this fall, as the dropping prices lure buyers back into the market.

"Sellers continue to aggressively price and market new homes," said Patrick Newport, an economist with Global Insight. "Provided that financial markets stabilize, we still expect their efforts to pay off with new-home sales turning in the second half of this year."