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Why New Home Sales Are So Bad

Ugh! New home sales, which measure contracts signed, fell to an all-time low of 250,000 annualized sales in February (they've been collecting records since the early 1960s) — well below the 288,000 expected.

CNBC Investor Guide to Spring Real Estate 2011 - See Complete Coverage
CNBC Investor Guide to Spring Real Estate 2011 - See Complete Coverage

All four regions saw declines. The median price for new homes fell 8.9 percent from a year ago.

This follows the disappointing February existing home sales (which measures closings, not contracts signed) out on Monday, which came in at 4.88 million annualized sales, below the roughly 5 million expected.

It's a pretty simple story: existing home sales are continuing to sell at a much bigger discount to new home sales than has historically been the case.

In other words: buyers perceive more value in buying an existing home. This means more pressure to lower prices on new homes, and — as we have seen — lower building starts and permits.

Housing—Second Opinions:

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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