While the nation's largest builders continue to gain share of the new-home market, the number of new homes sold annually is on the decline, according to industry experts.

Prior to 1998, the annual tally of new-home sales had never broken 850,000. Since 1998, the number of new homes sold annually has not dipped below 877,000. New-home sales eclipsed 1.2 million units a year in 2004 and 2005, but fell to 1.06 million in 2006. This year promises even further reduced sales.

“The pace of new-home sales continues to fall,” says John Burns, president of John Burns Real Estate Consulting, based in Irvine, Calif. “March was horrible, and April's going to be even worse. Most of my clients are planning for reduced sales volumes for the remainder of the year.” Burns says sales rates will get worse, month-over-month, through 2007, and is projecting new-home sales around 800,000 for the next several years. As of press time, the U.S. Census Bureau had not released new-home sales data for March, but the seasonally adjusted rate of such sales has been declining; since reaching just over 1 million units in December 2006, it fell to 848,000 in February.

While most industry experts, economists, and analysts agree that new-home sales will be off significantly from recent years, not everyone thinks sales will be off by as much as Burns is predicting. National Association of Realtors (NAR) chief economist David Lereah thinks 2007 will see new-home sales of about 904,000, according to a report published by NAR. Mark Zandi, chief economist for Moody's Economy.com, says he expects roughly 900,000 new-home sales.

But Burns isn't drinking the Kool-Aid.

“The builders are opening fewer communities, and they've all downsized their operations significantly to build fewer homes,” Burns says.

While many builders have complained that tighter lending standards meant to stem the tide of rising foreclosures are causing sales declines, Burns sees it differently. Sure, tougher lending restrictions have scared some people away, but the vast majority of those in the market to buy a new home can still find the credit they need, Burns says. The problem is one of lack of demand.

“We've sold homes to most of the qualified renters in the country and even to the point where we've sold homes to people who weren't qualified to be owning them,” Burns says.