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The Honolulu Advertiser
Posted on: Saturday, March 25, 2006

Concerns rise as new-home sales fall

By Martin Crutsinger
Associated Press

WASHINGTON New-home sales fell by the biggest amount in almost nine years in February while home prices declined for a fourth straight month, raising concerns that the once high-flying housing market could be in for a rougher-than-expected landing.

The Commerce Department reported yesterday that sales of new single-family homes dropped by 10.5 percent last month to a seasonally adjusted annual sales pace of 1.08 million homes.

It was the second straight decline, after a 5.3 percent fall in January, and marked the biggest one-month drop since April 1997.

The slowdown in sales further depressed home prices with the median price for new homes sold in February falling to $230,400, 1.6 percent below the January level. It marked the fourth straight month that the median had fallen since hitting an all-time high of $243,900 in October.

Analysts, who forecast a much more moderate drop of around 2 percent, said the big decline and downward revisions to sales activity in the previous three months could be signaling that housing will slow more this year than had been expected.

"The new-home market looks like it is starting to stagger," said Joel Naroff, chief economist at Naroff Economic Advisers. "Bubbles do burst, they really do."

But other analysts said the decline overstated the weakness. They noted a report that showed sales of previously owned homes rose 5.2 percent last month, although that came after five months of declines.

A crash in home prices is seen as one of the biggest threats to economic growth.

With mortgage rates being pushed higher as the Federal Reserve raises rates to fight inflation, the worry is that home sales will slow further and put more pressure on prices.

"The housing market is fading fast and the prospect is it will weaken further as rates move higher," said Mark Zandi, chief economist at Moody's www.Economy.com.