Sales dropped 1.6% to a 313,000 annual pace, the slowest since October, from  a 318,000 rate in January that was weaker than previously reported, figures from  the Commerce Department showed Friday in Washington. The median estimate of 78  economists surveyed by Bloomberg News called for 325,000.

Sales of new homes are struggling to gain momentum amid increasing  competition from foreclosures, which are hurting all property values.  Nonetheless, a pickup in hiring, growing incomes and mortgage rates near a  record low are making all houses more affordable, which may help underpin the  market.

“There are signs of life in the market in certain regions, but we’re not  seeing a broad-based recovery,” said Michelle Meyer, a senior U.S. economist at  Bank of America Corp. in New York, who forecast a 310,000 sales pace. “Builders  are still competing with existing inventories. The spring selling season should  show some modest improvement, but it will be limited.”

Economists’ estimates ranged from 310,000 to 350,000. The rate for January  was previously reported at 321,000.

The recent slowdown in demand has pushed up the amount of time it takes to  sell a new house. There were 150,000 new houses on the market at the end of  February, matching the prior month’s record low. The supply of homes at the  current sales rate climbed to 5.8 months’ worth from 5.7 months in January.

Purchases, tabulated when contracts are signed, fell in two of the four U.S.  regions, led by a 7.2% drop in the South. Sales fell 2.4% in the Midwest and  rose 14% in the Northeast and 8% in the West.

The regional breakdown affected prices as demand fell in the South and  Midwest where homes are less expensive and rose in the Northeast and West where  they are costlier.

The median sales price increased 6.2% in February from the same month last  year to $233,700, Friday’s report showed.

New-home sales have lost their ability to forecast the broader market as  demand shifts to previously owned houses. Purchases of existing homes are  calculated when a deal closes about a month or two later. New properties made up  almost 7% of the market last year, down from a high of 15% during the last  decade’s housing boom.

Existing-home purchases eased to a 4.59 million annual rate last month from a  4.63 million pace in January, the National Association of Realtors reported this  week. Even with the decline, January and February sales marked the strongest  start to a year since 2007.

Home foreclosures remain a concern for builders. Filings fell 8% in February,  the smallest year-over-year decrease since October 2010, as lenders began  working through a backlog of seized properties, RealtyTrac Inc. said last week.

“February’s numbers point to a gradually rising foreclosure tide,” Brandon  Moore, RealtyTrac’s CEO, said in the statement. “That should result in more  states posting annual increases in the coming months.”

To hold down borrowing costs like mortgage rates, Federal Reserve policy  makers last week said they will continue to swap $400 billion in short-term  securities with long-term debt to lengthen the average maturity of the central  bank’s holdings, a move dubbed Operation Twist.

The National Association of Realtors’s affordability index climbed to a  record high in January, underpinning demand. That may be why builders are  gaining confidence.

Builders this year have broken ground on homes at the fastest pace since  October to November 2008, according to Commerce Department figures released this  week. Permits for construction climbed to the highest level since 2008, the same  report showed.

The National Association of Home Builders/Wells Fargo index of builder  confidence in March held at the highest level since June 2007. Sales  expectations climbed for a sixth month, according to the March 19 report.

Ryland Group Inc., which builds homes with an average price of $255,000 in 13  states, said it has a positive outlook for 2012.

“We finished the year on a strong note, entered the year optimistic and still  feel fairly optimistic today,” Larry Nicholson, president and CEO at the  Westlake Village, Calif.-based company, said March 6 at an investor conference. “The good thing about the traffic we are seeing is it’s new traffic. We feel a  lot better than we did a year ago. Hopefully, we can keep this trend up.”

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