New Home Sales Dip 12.6%

The feeble condition of the homebuilding industry has once again reflected in the home sales statistics for January. New home sales dropped 12.6% to a seasonally adjusted 284,000 units from 325,000 units in December last year. Meanwhile, pending home sales index fell 2.8% to 88.9 from 91.5 in the previous month.

The decline in new home sales during the month was attributable to the deteriorating conditions in the West as well as in the South, partly offset by improvement in the Northeast and the Midwest markets in the U.S. The Western market saw a 37% drop in sales followed by a 13% decline in the South, partially offset by a 55% increase in sales in the Northeast and 17% in the Midwest.

The country’s major homebuilders including D.R. Horton (DHI), PulteGroup (PHM), Meritage Homes Corporation (MTH), Toll Brothers (TOL) and Lennar Corp. (LEN) were also affected by the poor home sales. Each of these homebuilders reported losses in the recent quarters, citing weak economic conditions and adverse factors influencing the housing industry.

The deteriorating condition in the West was caused by the expiration of a California tax credit that intended to pay buyers a tax incentive up to $10,000. On the other hand, the demand conditions in the South were adversely affected by bad weather that prevented buyers from venturing into new developments in the region. However, the median sales price of homes rose 5.7% year over year to $230,600 in January, reflecting a shift in sales mix towards the more costly West.

The drop in pending home sales indicates fewer future home sales, mainly driven by unnecessarily tight credit, high unemployment and falling consumer confidence.

However, consumers are more attracted to previously owned homes than new developments. As a result, previously owned home purchases improved 2.7% in January from the prior month. The existing home purchases rose for the third consecutive month, with an annual rate of 5.36 million, driven by low prices of foreclosures.

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