New Home Sales Hit Record Low

If sales of existing homes are falling, you can bet new home sales are doing worse. A government report today confirms it, showing sales of new homes hit a record low in February.

The U.S. Commerce Department report shows sales of new homes fell 16.9 percent last month to an annual rate of 250,000. A rate of 700,000 homes is considered normal.

At the same time, the median price of a new home is getting cheaper. In February it was $202,000, down 14 percent and the lowest since December 2003. But even at that low price, new homes are much more expensive than existing homes, and therein lies the problem.

Existing homes are cheaper

In February, the median price of an existing home was $157,000. In some markets, bargain hunters are scooping up distressed properties for about $30 to $40 per square foot. The cost of new homes, which includes labor and materials, is normally $100 or more per square foot.

The National Association of Realtors reported Tuesday that sales of existing homes in February, even at that low median price, were down 9.6 percent. If Realtors are having a hard time selling existing homes, it’s no surprise builders are struggling to sell new ones.

Could values fall another 20 percent?

Economist Gary Shilling, interviewed today by Yahoo’s Tech Ticker, says home prices could fall another 20 percent before hitting bottom. He blames what he calls a “two-tiered recovery,” in which people with investments in the stock market are doing very well, but everyone else isn’t.

From peak to trough, Shilling says home prices are down 43 percent so far. With a further drop in prices, he predicts 40 percent of U.S. mortgages will eventually be under water.