Reuters – Homes under construction are seen in Walnut, California, February 16, 2010. REUTERS/Mario Anzuoni …

On Wednesday February 24, 2010, 10:23 am

WASHINGTON (Reuters) – Sales of newly built single-family homes unexpectedly fell to a record low in January, according to government data on Wednesday that hinted at potential trouble for the fragile housing market recovery.

The Commerce Department said sales dropped 11.2 percent to a 309,000 unit annual rate, the lowest level since records started in January 1963, from an upwardly revised 348,000 in December.

It was the third straight month that new home sales fell and the percentage decline in January was the largest in a year. Analysts polled by Reuters had expected new home sales to increase to a 360,000 unit annual pace from December’s previously reported 342,000 units.

Compared to January last year, sales fell 6.1 percent.

“It’s awful. This is with the home buyer tax credit. I don’t understand people who say the housing market is turning,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

U.S. stocks trimmed gains after the data, while Treasury debt prices erased gains. The dollar pared losses against the euro, but fell to session lows versus the yen.

The drop in sales last month came despite the extension of a popular tax credit for first-time buyers, which was also expanded for repeat buyers.

The $8,000 tax credit and purchases of mortgage-related securities by the Federal Reserve have underpinned the housing market recovery from a three-year slump, which dragged the U.S. economy into its worst downturn since the 1930s.

INCENTIVES END SOON

The Fed’s program ends next month, while the tax incentive runs out in June, leaving a potential void in the market.

Speaking before Congress, Fed Chairman Ben Bernanke reiterated a pledge to keep interest rates at very low levels for a long time, citing a weak labor market and tame inflation.

Separate data from the Mortgage Bankers Association showed mortgage applications fell last week for a third straight week as demand home loans sank to the lowest level in 13 years.

The association blamed bad weather for the slump in home loan demand.

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