Sales of new homes drop more than expected

A separate report Wednesday, showed sales of previously owned homes rose for the third straight month in January hitting an eight-month high as prices dropped and investors snapped up sales on foreclosed homes and distressed properties. 

Purchases of previously owned homes — which include single-family, town homes, condominiums and co-ops — increased 2.7 percent to 5.36 million in January from a downwardly revised 5.22 million in December, the National Association of Realtors said Wednesday.

For the first time in seven month the sales pace was higher than a year earlier, up 5.3 percent above the 5.09 million level in January 2010.

“Higher sales is a positive signal, particularly in the winter months,” said Anthony Sanders, professor of real estate finance at George Mason University. “However, many of the sales came from 100 percent cash transactions, many on foreclosed properties. So the report is akin to a post-holiday clearance sale at Macy’s. Not a rally, just a clearance sale.”

New home sales could continue struggling as an increasing number of foreclosures offer prospective buyers and investors a more attractive option. That’s forcing homebuilders to curtail construction, leading to slower new home sales that are likely to remain slow as foreclosures clog the market. 

Foreclosures are expected to increase about 20 percent this year, with prices dropping 5 percent more and bottoming out in the spring, according to RealtyTrac Inc., an Irvine, Calif.,-based group that tracks the market.

Compared to January 2010, sales were down 18.6 percent, the Commerce report showed. Sales jumped 62.5 percent December as buyers in California took advantage of the tax credit for new homes. Those sales plummeted by 36.5 percent in the West in January. 

Purchases were up 55 percent in the Northeast and 17 percent in the Midwest, the report said. 

The median sales price fell 1.9 percent in January from the previous month to $230,600, the report showed. Compared with January 2010, the median price was up 5.7 percent.

In January, there were 7.9 months worth of homes on the market, up from seven months in December, with only 188,000 new houses on the market at the end of last month, the fewest since December 1967. Economists argue a six-month inventory represents a healthy market.