February new home sales rise unexpectedly

March 25, 2009 1:09:40 PM PDT
It was the second-worst month on record for sales of new homes. But last month still brought a long-awaited shred of good news for the battered building industry. February's results, while still far below last year's levels, provided some hope that new home sales have finally hit bottom and the worst may be past. Prices, however, are likely to remain weak for months as builders continue to clear out their stock of unsold homes.

"We are prepared to hazard the view that the post-Lehman meltdown is now over and the market is stabilizing," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, referring to last fall's collapse of investment bank Lehman Brothers and the subsequent Wall Street plunge. "That's not the same as a recovery, but it is better than continued declines in sales."

The Commerce Department said sales rose 4.7 percent in February to a seasonally adjusted annual rate of 337,000 from an upwardly revised January figure of 322,000. Even after the revision to January's sales results, that month remained the worst on records dating back to 1963.

Economists surveyed by Thomson Reuters had expected February sales to fall to a pace of 300,000 units.

The report "is another faint but nonetheless encouraging sign that the economic slide may be moderating," wrote David Resler, chief U.S. economist at Nomura Securities.

Since the report reflects signed contracts to buy new homes rather than completed sales, it could reflect the early impact of a new a new $8,000 tax credit for first-time buyers signed by President Barack Obama in mid-February.

Despite the boost, February's sales were still down by more than 40 percent from the same month a year earlier. The median sales price fell to $209,000, a record 18 percent drop from the same month last year. The median price is the midpoint, where half sell for more and half for less.

And some analysts remain skeptical new home sales are starting to recover, saying the data are notoriously volatile. They wouldn't be surprised if sales fall back again, especially as the recession worsens.

Until job losses stop mounting, "I don't think you're going to see good housing numbers," said Patrick Newport, an economist at IHS Global Insight.

The nation's unemployment rate - now at a quarter-century peak of 8.1 percent - is expected to keep climbing. Some economists think it will hit 10 percent by the end of this year.

In California, the jobless rate is forecast to climb to a staggering 11.9 percent by spring of next year, and double-digit unemployment will linger through 2011, according to the quarterly Anderson Forecast from the University of California at Los Angeles, which was released Wednesday.

Nationally, the number of unsold homes fell to the lowest point since April 2002. But sales are so slow that it would take more than a year at the current sales pace to exhaust the supply of new homes on the market.

Fallout from the housing crisis has played a central role in the U.S. recession, now in its second year. Foreclosures have spiked, financial companies have racked up multibillion-dollar losses and home builders like Pulte Homes Inc., D.R. Horton Inc. and Lennar Corp. have been clobbered. Investors, however, cheered at the new home sales numbers and bid up shares of some of the major builders on Wednesday.

To stabilize the housing market, which has pulled the overall economy into the deepest recession in decades, the Obama administration has unveiled a $75 billion plan to curb foreclosures, and the Federal Reserve is taking dramatic steps to lower mortgage rates. In February, sales rose almost 10 percent in the South from a month earlier, and 7 percent in the West. They dropped about 9 percent in the Midwest and 3 percent in the Northeast.

"I'm hopeful the worst is over," said David Crowe, chief economist for the National Association of Home Builders. "I don't think we're quite out of the woods either. I think we will bounce around a bottom for a month or two."

In another encouraging sign this week, sales of previously occupied homes also jumped unexpectedly in February by the largest amount in nearly six years as first-time buyers took advantage of deep discounts on foreclosures and other distressed properties. The National Association of Realtors said Monday that sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January.

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Associated Press Writer Michael R. Blood contributed to this report from Los Angeles.

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