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Martin Crutsinger AP Economics Writer
Published: 24 April 2012

WASHINGTON (AP) -- Sales of new homes fell in March by the largest amount in more than a year, indicating that the U.S. housing market remains under strain despite some modest signs of improvement.

The Commerce Department said Tuesday that sales dropped 7.1 percent in March to a seasonally adjusted annual rate of 328,000 units. That followed a 7.3 percent increase in sales in February. This figure was revised up from an initial estimate that February sales had fallen 1.6 percent.

The weakness in March could reflect that a warmer-than-normal winter caused sales that normally occur at the start of the spring sales season in March to occur in February instead.

The median sales price was $234,500 in March, down 1 percent from the February price.

Sales of new homes stand at just about half the roughly 700,000-a-year pace that analysts consider evidence of a healthy market.

The supply of unsold new homes fell to just 144,000 in March - the fewest on records dating to 1963. The supply has been falling over the past two years as builders have cut back on construction.

Michael Gapen, an economist at Barclays Research, said the low inventory level should trigger a moderate pickup in housing construction in coming months and provide some support to the economy.

Last week, the National Association of Realtors reported that sales of previously owned homes fell 2.6 percent in March to a seasonally adjusted annual rate of 4.48 million units. For previously owned homes, economists consider a healthy annual sales rate to be roughly 6 million.

The sales declines in March were led by a 27 percent drop in the West. Sales in the Midwest fell 20 percent. New-home sales rose 7.7 percent in the Northeast and 3.1 percent in the South.

A separate report on home prices showed that home prices dropped in February in most major U.S. cities for a sixth straight month. The Standard & Poor's/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks.

Though new homes represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics compiled by the Realtors.

A key reason for weak sales in the new-home market is that builders must compete with foreclosures and short sales. (Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage.)

About half of the states reported sharp increases in foreclosure activity in February. The pace of foreclosures is rising now that states have reached settlements with the nation's five biggest mortgage lenders over foreclosure abuses.

Builders have stopped working on many projects because it's been hard to get financing and to compete with cheaper resale homes.

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