Slowdown in New-Home Sales

New-home sales for January came in much weaker than expected, falling 17% from December, with the Western region of the U.S. being particularly dismal.

At a pace of 937,000 in the month, home sales fell from the revised December rate of 1.12 million, the Commerce Department said Wednesday. Economists expected 1.08 million sales. The sales were down 20% from a year ago.

In the West, which includes previous red-hot housing markets California, Arizona and Nevada, sales fell 37% from December to January. The region experienced a 50% decline in sales year over year.

The overall inventory level hit 536,000 homes, flat from December. However, the supply number for inventory hit 6.8 months, up from 5.7 months in December because of the slower sales pace.

Phillip Neuhart, an economic analyst with Wachovia, cited the buildup of completed homes in inventory as a troubling sign for the housing market.

"There are more homes in the inventory that are actually completed, not under construction anywhere, that are empty," Neuhart says.

During January, 32% of the new homes for sale at the end of the month had already been constructed, up from a low-20% range during the housing boom, Neuhart says.

The weak new-home sales report followed Tuesday's news from the National Association of Realtors that the median home price of existing homes sold in January fell 3.1% from a year earlier. Also, homebuilder Hovnanian Enterprises(HOV Quote) reported new land writedowns related to unprofitable land in South Florida.

Homebuilder stocks continued their slide following the latest report. Toll Brothers(TOL Quote) fell 3.1% to $29.63, and Hovnanian fell 2.2% to $31.26.