New-home sales in the U.S. hit a record low in February and registered their slowest pace, adding to concerns that any recovery in the housing market is still a long way off.
Sales fell 16.9% from January and were down 28% from a year earlier, the Commerce Department said. Sales have fallen month over month for the last two months.
The data, adjusted for seasonal variations, showed the nation on a pace to create 250,000 units this year. The government report follows one Monday by the National Assn. of Realtors showing that sales of previously owned homes dropped 9.6% in February.
Demand for housing has been weak ever since a tax credit for buyers expired last year. With unemployment still high and foreclosures plentiful, the market probably will remain in the doldrums for the foreseeable future, economists said.
"We still have a labor market that is not really fully participating in this recovery," said Sean M. Snaith, director of the University of Central Florida's Institute for Economic Competitiveness. "Persistently high unemployment continues to feed into the foreclosure trouble, and that continues to push more inventory back on the market."
Home builders, in particular, face competition from the big supply of foreclosures on the market. What's more, according to IHS Global Insight economist Chris G. Christopher Jr., these builders are facing increases in commodity prices, which add to their costs.
"The market for new homes has been stuck at the bottom for nearly two years, and this report is not good news," Christopher wrote in a research note Wednesday. "The new and existing housing markets are in a very precarious situation. Prices and sales are falling; inventory is increasing."
Stocks of big builders dived Wednesday morning after the report but recovered by the end of the trading day. Shares of KB Home of Los Angeles initially fell 22 cents but ended with a gain of 6 cents to $13.29. PulteGroup Inc. fell 18 cents at first but closed 26 cents higher at $7.40.
The estimated number of homes for sale on the market was 186,000 in February, according to the Commerce Department. That represents a supply of less than nine months. Economists typically consider a supply of six months or below as healthy.
The latest figures represent the lowest sales and slowest pace since the Commerce Department began keeping records in 1963.
Regionally, sales fell 14.7% month-over-month in the West, 57.1% in the Northeast, 27.5% in the Midwest and 6.3% in the South.
Though sales of new homes make up a smaller part of the nation's housing market, new residential construction usually boosts a recovering economy. But with home prices continuing to be weak, people are likely to remain reluctant to spend on other kinds of consumer goods, Snaith said.
"The wealth that we lost during the housing bust, we are not getting that back," Snaith said. "The stock market has had a nice recovery, but the same is not true for housing, and that weighs on a lot of people's spending behavior."