New Home Sales Fall, Factory Orders Drop

The Commerce Department reported Wednesday that new home sales dropped 1.8 percent last month to a seasonally adjusted annual rate of 590,000 units, the slowest sales pace since February 1995. The decline was slightly worse than expected.

The median price of a home sold last month dropped to $244,100, down 2.7 percent from the level of a year ago.

The prolonged slump in housing has dragged down overall economic activity. Many analysts believe the slump could combine with a multitude of other problems including a severe credit crunch, soaring energy prices and plunging consumer confidence, to push the country into a full-blown recession.

The number of unsold homes on the market at the end of the month represented a 9.8 months' supply at the February sales pace, the same as in January. That was the highest inventory level in more than 26 years and reflects the fact that increased numbers of mortgage foreclosures are dumping even more homes on an already glutted market.

Sales dropped the most in the Northeast, falling by 40.6 percent. Sales were also down in the Midwest, dropping by 6.4 percent, but posted gains in the South of 5.7 percent and 0.7 percent in the West.

Many analysts believe that the slump in housing, which began in 2006, could last into 2009. It was reported on Tuesday that the Standard & Poor's/Case-Shiller index of home prices fell nearly 11 percent in January from a year ago, the biggest year-over-year decline in the history of the index.

Analysts said that housing is being hurt currently by tighter lending conditions as banks react to soaring mortgage defaults and the reluctance of prospective buyers to make a decision, fearing that prices have further to fall.

In other economic news, orders to factories for big-ticket manufactured goods fell 1.7 percent in February, a second consecutive decline and further evidence of the economic troubles gripping the country.

The declines in orders for durable goods, items expected to last at least three years, showed up in a number of areas. Demand for manufacturing equipment plunged by 13.3 percent, the largest amount on record, while orders for nondefense capital goods excluding aircraft, the category that is seen as a good proxy for business investment, fell by 2.6 percent, the biggest decline in four months.

Economic growth slowed to a barely discernible 0.6 percent in the final three months of last year, and many economists believe the gross domestic product will turn negative in the current quarter, signaling the start of a recession.

The 1.7 percent drop in orders for durable goods, items expected to last at least three years, was worse than the 1 percent increase that many economists had expected.

The weakness came even though orders for transportation equipment rebounded with a 0.6 percent rise in February after a big 12.6 percent plunge in January. The swing in both months reflected changes in demand for commercial aircraft, which rose 5.4 percent in February following a 30.2 percent plunge in January. Orders for motor vehicles fell by 2.7 percent in February as U.S. automakers continued to face weak demand, reflecting the weak economy and soaring energy prices.

Excluding transportation, orders fell by 2.6 percent in February, representing the fourth decline in the past five months.

Economists believe that if the country does slip into a recession, the downturn may not be as severe in manufacturing, which is being helped by continued strong growth overseas, which is bolstering U.S. exports.