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Sales of new homes declined for the second consecutive month in February to a near-seven-year low and unsold inventory continued to rise, dashing hopes that the housing slump has hit bottom. New home sales fell 3.9% to 848,000 units annualized, their lowest pace since June 2000, from 882,000 in January, according to a Commerce Department report released yesterday. Analysts had been expecting a rise to just under one million. The inventory clearance rate of 8.1 months -- its highest in sixteen years -- is probably even worse than it appears, since it does not include homes put on the market after buyer cancellations. Rising delinquencies and foreclosures, particularly among subprime borrowers, are expected to add to unsold inventory, and a corresponding tightening of credit standards among lenders is hurting sales. Gary Thayer, chief economist at A.G. Edwards: "The drop in sales of new homes in February shows a very weak housing market and suggests that home construction will remain a drag on the economy for much of the year." U.S. government bond prices rose and the dollar fell on speculation the report would prompt the Fed to cut interest rates, and shares of streetTRACKS SPDR Homebuilders ETF (XHB) fell 1.53% to $34.17 in yesterday's trading.

Sources: Wall Street Journal, Business Week, MarketWatch, Reuters
Commentary: New Home Sales Data: 7 Year LowHomebuilders, Financials Drag Broader Market DownDon't Celebrate Quite Yet: Housing Still Hasn't Bottomed
Stocks/ETFs to watch: Lennar Corp. (LEN), KB Home (KBH), D.R. Horton Inc. (DHI), Pulte Homes Inc. (PHM), Standard Pacific Corp. (SPF). ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB)

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Source: New Home Sales Drop for Second Month Straight