U.S. new-home sales slide further

New-home sales nationwide fell more than expected last month, government data released Monday showed, but California and the West held up better than the rest of the nation as the state’s home buyers responded to discounts and other incentives.

The Commerce Department reported that U.S. new-home sales dropped 3.9% in February from the previous month to an annual pace of 848,000, the lowest level in nearly seven years and well below economists’ forecasts of 985,000. Sales were down 18.3% from the year-earlier period.

The only region to see a gain was the West, which includes California. Sales rose 24.6% from January to February but were down 5.7% from 2006.

The strong regional trend buttresses what some builders and industry experts have been saying about California’s new-home sector, which represents about 15% of the state’s overall housing market and was the leading contributor to job growth during the five-year boom.

Since January, traffic at California new-home communities has picked up, sales have increased and prices have stabilized -- the direct result of builders quickly adjusting to a slowing market by lowering prices, offering purchase incentives and curtailing new construction.

Locally, builders “dealt with the problems immediately when they started to appear in mid-2006, rather than delay,” said Steve Johnson, Southern California director of industry consulting firm MetroStudy. “I’ve been through three major housing corrections, and I’ve never seen builders react as swiftly as this to a change in the economic cycle.”

Measures for the state show relative strength. January data -- the most recent month available -- showed that new-home sales in California rose 9.4% from December, while the median asking price was unchanged at $463,900, according to the California Building Industry Assn., the state’s largest building trade group, and Hanley Wood Market Intelligence, a consulting firm.

New-home sales in the Inland Empire, Orange County and Ventura County all rose by at least 16% in January. In Sacramento, one of the nation’s softest new-home markets in 2006, sales rose 37%.

What’s more, inventory of unsold new homes in the state was virtually flat at the end of January with the previous month, the California builders said.

But David Seiders, chief economist for the National Assn. of Home Builders, said the strong sales gain in the West was a statistical fluke, largely attributable to an unusually low reading in January that made the comparison appear more impressive.

More telling will be how the market performs this month and in April, part of the prime spring home-buying season.

In many ways, prospective buyers are finding better deals in new communities than in the existing-home market, especially in areas where speculators had snapped up new units and are now trying to unload them, said Patrick Duffy, a managing director with Hanley Wood. Builders, he said, have greater motivation and ability to sell their units below prevailing market rates.

“New homes are more competitive against resales than they have ever been,” he said. “Lots of resale homes are, in effect, new homes because of speculation. But in many cases they are more expensive because these sellers haven’t necessarily lowered their prices or offered incentives.”

Duffy and Johnson warned, however, that California’s new-home market may soon feel the effects of the meltdown in the sub-prime mortgage market, which surfaced in the last 30 to 60 days. Many first-time new-home buyers, especially those with no down payment and with weak credit histories, have relied on high-cost sub-prime mortgages to become homeowners.

But with banks recently toughening their rules for such borrowers, many analysts see the demand for new homes weakening in the near term, prolonging the nation’s housing slump.

Such concerns rattled Wall Street on Monday, and builders’ stocks tumbled. The national new-home data plus other fresh reports showing foreclosure filings on the rise suggested that the housing sector was only starting to exhibit significant strains.

Analysts predict more homeowners will struggle with declining values and higher adjustable mortgage rates, leading them to sell at reduced prices or enter foreclosure.

A report Monday from RealtyTrac Inc., an Irvine-based data service, showed that national foreclosure-related activity -- including notices of default, trustee sales and bank repossessions -- rose 12% in February from a year earlier. In California, foreclosure filings were up 78% to a total of 16,273, still a small fraction of the state’s 8.2 million homes.

February’s weak U.S. new-home numbers, which followed downward revisions in November, December and January statistics, reflect the tighter lending standards, said Patrick Newport of economic research firm Global Insight.

“The housing market is weak and continues to weaken,” said Newport, who predicts that housing will start to recover in 2008, after shaving a percentage point off of U.S. economic growth.

Even usually upbeat industry executives were more subdued after seeing Monday’s data. The National Assn. of Home Builders said a survey of its members in early March showed a drop in sentiment, which the group said was primarily the result of worries about how the sub-prime mortgage fallout would affect their business.

“Today’s numbers suggest we are already seeing serious effects on the lending side,” said Brian Catalde, the home builder group’s president and president of El Segundo-based Paragon Communities.

annette.haddad@latimes.com