Despite some signs of relief in the U.S. housing market, most economists foresee continued challenges for new home sales over the coming months.

After unexpectedly rising 4.7% in February to 337k, economists expect new home sales in the U.S. to remain unchanged on the month in March. New home sales reached a record low of 322k in January, according to the Department of Commerce.

"Sales of new homes will likely continue to struggle during the first half of 2009 as employment, economic concerns and mortgage market troubles outweigh the improvements in overall affordability we have seen," economists from Wachovia noted.

They added that a decline in completions and general building activity will result in less supply coming into the market, and that inventories could return to the "equilibrium" levels seen in the late 1990s by this summer.

"There are a number of powerful incentives to purchase a new home in place today, including builder discounts, tax rebates for first-time home buyers and exceptionally low mortgage rates," they said.

Economists at Desjardins, meanwhile, said that despite the impressive rebound in February, the inventory of homes in the market remains high while the fall in prices does not appear to be slowing. In February, the median house price fell to $200,900, down from $206,800 in January. Annually, prices have fallen 18.1%.

"Yet, we can find some relief in the fact that homebuilder sentiment seems to be edging up from the nadir recently reached, and consumer confidence indexes associated with the purchase of a new home are doing slightly better than the indexes covering the purchase of an existing home," the Desjardins economists noted.

On the more optimistic side, HFE chief U.S. economist Ian Shepherdson is looking for sales to jump to 375k, while calling for a drop in inventories and prices.

"We think record low mortgage rates will prompt something of an upturn in sales; that's certainly the message from the NAHB survey," he said.

Last week, the National Association of Home Builders released a survey showing that confidence amongst home builders rose to its highest level since October.

The new home sales data will be released by the Department of Commerce at 10 a.m. EDT.

By Stephen Huebl and edited by Sarah Sussman
©CEP News Ltd. 2009