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At 10:00 A.M. (EDT), we received the latest report on the steadily improving housing market when the U.S. Department of Commerce issued new residential data for the month of February. The report made for disappointing reading, as new home sales fell both on a sequential and year-over-year basis.

Specifically, sales of new single-family houses in February came in at a seasonally adjusted annual rate of 440,000 units. That figure was down 3.3% from the revised January figure and 1.1% lower than the February, 2013 tally.

A geographic breakdown of the new home sales data also painted a somewhat dour picture. With the exception of the Midwest, where new home sales rose 36.7% on a sequential basis, units sold were down in Northeast, South, and the West, to the respective tunes of 32.4%, 1.5%, and 15.9%. The one silver lining—and it may be a very good one—sales of new homes in the South, which is by far the largest market for new home sales, increased nearly 20% on a year-to-year basis last month. Too, we also think that sales in the other homebuilding regions were hurt by the severe winter weather that blanketed a good portion of the country during the month of February.

All in all, even with the setback in February new home sales, we are optimistic about the industry’s prospects over the course of 2014. We think that once most of the nation gets far away from the latest severe winter weather, new residential construction and ultimately sales will pick up again during the spring selling season. In fact, building permits, which are strong indicator of future construction activity, were up nicely last month. Meanwhile, in a separate report, The Standard & Poor's/Case-Shiller home-price index showed that while home prices dropped, on a sequential basis, in January, the 10-City and 20-City Composites rose 13.5% and 13.2%, year over year, in the initial month of 2014. This pricing data, along with recent reports that foreclosures and short sales—which tend to sell at a fraction of their original listing prices and are competition for new units—have declined considerably in recent quarters, augurs well for a continued—and  steady—rebound for new homebuilding in 2014.

The construction and sales of new homes—though only a small fraction of the nation’s total home sales at roughly 10%—is vital to the overall health of the U.S. economy as each new property built creates an average of three jobs for a year and generates close to $90,000 in tax revenues.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.