Sales of new single-family homes fell 3.9% in February to their lowest level since 2000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. The drop surprised Wall Street, which sank into a broad selloff shortly after the news was released, with most of the publicly held builder stocks off by 1% or more in midmorning trading on March 26.

Single-family homes sold at a seasonally adjusted annual rate of 848,000 in February, compared to the revised January rate of 882,000. February sales were 18.3% below the same month last year. The inventory of new single-family homes for sale nationwide stood at 546,000, an 8.1-month supply at current sales rates.

Sales were strong in the West, where they were up 24.6% in February, a strong rebound from a drop of more than 25% in January. Sales were down sharply in the Northeast and Midwest, where they were down 26.8% and 20% respectively. February sales were off 8% in the South. Compared to February 2006, sales were down 36.9% in the Northeast, 32.2% in the Midwest, 17.1% in the South and 5.7% in the West. SEE DATA HERE

Still, both average and median prices continued rising, with the average price pegged at $331,000, up from $310,100 in January and the median price at $250,000, up from $243,200 in January.

"I don't think it's good news at all," said Patrick Newport, U.S. economist for Global Insight, an economic forecasting firm based in Waltham, Mass. "It probably means the subprime problems are starting to have an impact on the numbers." He added, "I think it means we're not going to see a recovery this year,"

There is the possibility that poor weather, particularly in the Midwest and Northeast, had a negative impact on traffic, and therefore sales. However, Newport pointed out that existing-home sales were actually up for February. "I think the weather may have played a small role, but I don't think it was responsible," he said.