Just when it appeared as though the recently struggling housing market was starting to overcome the moderate uptick in mortgage rates and the long and trying winter to get itself back on track, comes word out of Washington that the expected comeback from modestly weaker levels may be another month or two in the making.

Specifically, the U.S. Commerce Department earlier this morning reported that sales of new homes had dropped sharply and surprisingly last month, falling to an annualized rate of 384,000 residences. That was well under both the upwardly revised February total of 449,000 homes sold (initially, the month's estimate had been 440,000 homes) and expectations of 450,000 dwellings.

Now, this is a much smaller and more volatile market than existing homes, where, yesterday, the National Association of Realtors had reported essentially flat month-to-month results. Here, the falloff was material. A year ago, when mortgage rates were lower and we had not suffered such a difficult winter, sales were at 443,000 units.

Looking at this disappointing result, we find that this was the lowest monthly annualized total since last July when sales had come in at 373,000 homes. That was one of only two months (August being the other) that monthly sales had dipped below 400,000 homes in more than a year. As to the supply of homes, they came in at a seasonally adjusted 193,000 units in March--or a six-month supply at the current sales pace. That is considered to be right at the long-term average, and certainly not an unhealthy level.

Taken as a whole, this was a disturbing report, especially after this volatile market had been quite stable over the past six months, or so. We surmise that the earlier uptick in mortgage rates has not been fully gotten used to, while the rise in home prices, which remains quite strong, is dissuading some buyers. In fact, the median home price last month of $290,000 represented a 12.6% gain from a year earlier--a formidable increase. Clearly, affordability--especially among first-time buyers, who do not have an existing home to sell in this market--is starting to become an issue.

Breaking the 14.5% drop down, we find that sales were off by 21.5% in the Midwest, by 14.4% in the South (the biggest market), and by 16.7% in the West. On the other hand, they rose by 12.5% in the Northeast, which is the smallest of the four geographic regions.

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