New home sales fall to all-time low

One of the biggest concerns regarding efforts by the federal government to boost homebuying activity was that by borrowing demand from the future, when those training wheels were removed we could see a double-dip. So is that what's happening with the new home market? From a CNNMoney.com story:

Sales of new homes plunged to a record low in January, government figures showed Wednesday, as the weak economy and a glut of foreclosed homes continue to weigh on the market.

The seasonally adjusted annual rate of new home sales plummeted 11.2% to 309,000 last month, compared with a revised rate of 348,000 in December, the Census Bureau said. That's a decline 6.1% from January 2009...

The drop surprised many industry analysts. A consensus of economists surveyed by Briefing.com had expected January sales to rise to an annual rate of 354,000.

"Some people were expecting a surge in demand because of the tax credit," said Patrick Newport, an economist at IHS Global Insight. "But that surge isn't materializing."

Congress extended a popular tax credit last year that allows first-time buyers to deduct up to $8,000 from their income taxes and some repeat buyers to get a $6,500 break. Buyers now have until April to apply for the credit, which helped boost new home sales from depressed levels last year.

New home sales fell in all U.S. regions except the Mid-west, where sales edged up 2.1%. The Northeast was the hardest-hit last month, with sales plunging more than 35%...

At the current sales rate, it would take 9.1 months to sell through that inventory. That's up from December, when there were 8.1 months of inventory on the market. Prior to December, inventory levels had been steadily declining since May 2009.

Adam York, an economist at Wells Fargo, said the inventory of new homes for sale appears to be leveling off near 235,000 units.

"This is well below the level that persisted for most of the 1990s," he said, "suggesting builders have moved most of their excess inventory and will be in a better position when sales do eventually recover."...

Some economists expect new home sales to improve as the number of foreclosed properties on the market decreases and buyers take advantage of the tax credit.

"The supply of foreclosed homes has tightened," said Celia Chen, a senior director at Moody's Economy.com. "I think by early spring, home sales will pick up because buyers will want to take advantage of the tax credit."

IHS Global Insight's Newport said he also expects sales to pop this spring. However, he may reduce his full year forecast for new home sales in light of Wednesday's report.

"Builders are putting up homes," he said. "But what these numbers are telling us is that those homes aren't selling."