New home purchases fell 12.6% in January to start the new year off on the wrong foot, erasing a 15% gain in December sales.

The U.S. Census Bureau reported Thursday that sales of newly constructed single-family homes fell to a 284,000 seasonally adjusted annual rate in January, the lowest reading since May of last year. In December the rate was 325,000.

Weiss Research analyst Mike Larson sees the January sales report as another sign that "sales, pricing and construction activity are likely to bounce along the bottom for several quarters."

He noted the inventory of newly completed homes is "extremely low" with fewer new homes on the market than in any time since the 1960s.

"Competition from aggressively priced, distressed, 'used' inventory continues to hamper the new home business," Larson said.

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