Home Sales Dip, Pull Down Prices

Existing home sales in the U.S. took a 9.6% dip in February to a seasonally adjusted annual rate of 4.88 million units, reflecting a highly fragile housing market. However, new home sales climbed only 2.1% year over year to an annual rate of just 290,000 units. The overall pace of the ongoing recovery in the construction industry is considered to be the lowest compared with the other sectors of the economy.

The limited credit availability is a crucial factor behind the decline in existing home sales in the preceding month. The banks in the U.S. have been tightening their credit despite low level of interest rates and substantial demand from potential buyers. Another major factor is contract cancellations, resulting from failed negotiation between the buyers and sellers.

The fall in home sales gave way to inventories and expected to continue till 2012 as large numbers of foreclosed homes are expected to keep entering the market. Total housing inventory at the end of February climbed 3.5% to 3.49 million existing homes representing an 8.6 month supply at the current sales pace.

The excess supply will again have an adverse impact on prices, which too saw a 5.2% year-over-reduction in February. The national median existing-home price for all housing types was $156,100 in February. Specifically, the median existing single-home price dropped 4.2% to $157,000 while the median price for existing condominium was down 11.1% to $150,400.

To fight the weakening home demand, the major homebuilders in the country like KB Home (KBH), Lennar Corp. (LEN), PulteGroup Inc. (PHM), Toll Brothers Inc. (TOL) and DR Horton Inc. (DHI) are working to add value to homes with an intention to make homes more attractive to buyers. The homemakers intend to design and install systems in a manner so as to cut down the utility bills of home owners. As a part of the effort, KB Home recently announced that it would install solar panel systems as a standard feature in many of its communities.

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