Sales of new single-family homes in January plummeted to their lowest levels since February, 2003, the Commerce Department reported. Sales were at a seasonally adjusted annual rate of 937,000, according to estimates by the U.S. Census Bureau and the Department of Housing and Urban Development, 16.6% below the revised December rate of 1,123,000 and 20.1% below the January 2006 estimate of 1,173,000.

Regionally, the West took the biggest hit, with sales down 37.4%. Sales fell 18.7% in the Northeast, 9.7% in the South and 8.1% in the Midwest.

The median sales price of new houses sold in January 2007 was $239,800, $400 more than the price in December and $5,100 less than January 2006. The average sales price was $313,000, up 4.8% from December and 5.4% from January 2006. The seasonally adjusted estimate of new houses for sale at the end of January was 536,000, a 6.8-month supply at the current sales rate, up from 5.7 months. SEE THE PRESS RELEASE HERE

In a note to investors, Global Insight Inc.'s U.S. Economist Patrick Newport noted that unseasonably warm weather in November and December may have helped sales during those months and made January, which was the 49th warmest January on record, look worse. He suspects February, which has been miserable, will likely look bad as well, which could make March look better. After March, however, Newport said he expects the downturn to continue as the effects of tightened credit policies make their way into the marketplace. "Assuming that the damage is limited to the riskiest segments of the housing market, home sales will take a small hit, and so we will probably see both new and existing sales drop over the rest of the year," he explained.

The Building Research team at JP Morgan Securities pointed out that while the overall sales number was a surprise, it does not include sales of homes that had been counted as sales before but cancelled. The government does not count the sale of these homes in the monthly numbers since they have already been counted, yet their sale, although most likely at a lower price, does remove them from inventory.

The January decline, said the JP Morgan team in research note, "follows a pattern of one-month-only pullbacks [in July and October 2006]." It also believes that sales of previously cancelled homes, if added to the government sales figures, would reconcile the January sales figures with "builders' more positive statements regarding January order trends."

JP Morgan reiterated its positive stance on the home building sector, saying, "We believe leading fundamentals–specifically, inventories, can rates, and order trends–are beginning to stabilize or are on the cusp of recovering over the next few quarters."