New home sales in the U.S. in February have reached the lowest point in nearly last 50 years. New home sales in February fell for the second straight month, almost 17% year over year to a seasonally adjusted rate of 250,000 units.
The deterioration in home sales during the month was largely driven by poor performances in the Northeast and Midwest regions, where sales of new homes plunged 57% and 28%, respectively. On the other hand, sales in the West and the South regions recorded a dip of 15% and 6%, respectively.
The limited credit availability is a crucial factor behind the decline in home sales in the month under study. The banks in the U.S. have been tightening their credit facility despite low level of interest rates and substantial demand from potential buyers. Another major factor is contract cancellations, resulting from failure in negotiation.
The month also saw a 9.6% decline in the existing home sales to a seasonally adjusted annual rate of 4.88 million units. However, this was still better than the stated decline in new home sales.
However, the overall weak performance has given way to tack up of home inventories, thereby reducing the prices of homes. The median sales price of new houses sold in February 2011 was $202,100 while that for existing houses sold was $156,100. Although new home prices dropped 9% year over year in the face of a 5% decline in existing home prices, prices of new homes are still 30% higher than that of existing homes. This implies tough competition from the comparatively cheaper pre-owned homes.
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 to make it more attractive. The homemakers intend to design and install systems that could cut down the utility bills of home owners. In this regard, KB Home recently announced that it would install solar panel systems in many of its communities.
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