US New Home Sales Plummet in Feb 2011

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New Home Construction Hits Record Low in February, 2011

The sales of new homes plummeted last month, dropping almost 17% and reaching an all time recorded low, according to a report issued by the US Dept. of Commerce. The total number of new homes purchased in February projects to an annual rate of 250,000 home sales.

This anemic number illustrates the dire conditions present in the housing sector, especially as it happened concurrently with a big drop in existing home sales. These record low sales occurred at a time when home prices also have fallen to levels not seen since 2003.

New home sales face pressures from the tightening of credit, the high level of unemployment, and the strengthening of requirements to qualify for a mortgage loan. The market is also hampered by the perception in buyers’ minds that prices have not reached rock bottom.

Even more important, new home builders have to compete with the glut of foreclosed homes, which lower the demand for new homes and drive prices down even further. There is such a large number of homes in the foreclosure process, as well as many borrowers who are under enough duress to move further towards foreclosure, that these homes will be coming onto the market for quite a number of months, impeding a recovery.

Home builders’ confidence in the future of the new home construction market rose slightly, but remains low, according to the National Association of Home Builders (NAHB), "Builders are cautiously looking forward to the spring home buying season in hopes that improving economic conditions will help bring more buyers to the table," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev. "However, the same factors that have been weighing down the market are still very much in play, particularly competition from short sales and foreclosures, consumers' inability to sell their existing home, appraisals that are coming in below construction cost due to the inappropriate use of distressed properties as comps, and restrictive lending conditions for both buyers and builders."

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