As home sales continue to lag behind other industries as the economy struggles to its feet, new homes seem to be faring worst of all in the battered industry as foreclosures’ steep discounts continue to win market share.

Sales of new homes fell in January, dropping 12.6% from December’s revised rate, to a seasonally adjusted annual rate of 284,000, according to numbers released today by the U.S. Census Bureau and HUD. January’s number was 18.6% below the same month the year before, when the tax credit was still in effect.

However, the majority of the drop was caused by a 36.5% plunge in the West where units fell by 38,000 in January. Patrick Newport, U.S. economist at IHS Global Insight, points out that these numbers were skewed by California building code changes that increased prices after January 1, which fueled an increase of 40,000 units in the West in December as buyers rushed to purchase before price increases hit.

The South claimed the second-largest monthly drop with a decrease of 12.8% to a rate of 143,000, a 17.8% decrease from the previous year.

The Northeast and Midwest showed gains from the previous month, of 54.5% and 17.1%, respectively, but suffered greater drops compared to January 2010, with the Northeast losing 19.0% and the Midwest dropping 25.5% from the year before.

But pointing to the volatility of monlthly new home sales numbers, Newport recommends focusing on trends rather than the monthly estimates. "A three-month moving average shows new home sales still stuck at the bottom, with sales starting to pick up in the West, stuck at the bottom in the South, but still declining in the Northeast and Midwest," Newport wrote in a press release today.

The Census reported a 7.9 month supply in January, or 188,000 homes, an increase of 12.9% from the month before but a decrease of 1.3% from January 2010.

Sales prices also took a hit, with the median price of a new home in January reaching $230,600, down from $241,500. The average sales price declined from $291,400 in December to January’s $260,300.

Claire Easley is senior editor, online, at Builder.

Learn more about markets featured in this article: Greenville, SC.