New home sales hit a 13-year low despite falling prices, according to a Census Bureau report.

New home sales plunged to their lowest level in 13 years in February. This was according to the Census Bureau report on the housing market released Wednesday.

February sales dipped 1.8 percent to seasonally-adjusted annual rate of 590,000, the bureau report showed. January figures showed of 601,000 in January and down 29.8% from February last year.

Prices are still falling. New home sales fell despite continued price declines. The median price of a new home sold in February was $244,100, down 2.7% from $250,800 a year earlier.

This decline in median price probably doesn't accurately capture the weakness in prices for new homes, since about three out of four builders have reported having to pay buyers' closing costs or offer other incentives, such as expensive features for free, in order to maintain sales.

"Falling prices are a double-edged sword," said National Association of Home Builders chief economist David Seiders. "Affordability of homes needs to be restored, but some prospective buyers stay away because they believe home prices will continue to go down further."

Prices have been driven down by the glut of new homes on the market.

Builders found it typically took 7.2 months to sell a completed home in the current market, according to the report.

The report showed 188,000 completed new homes available at the end of the month, bringing total inventory - including new homes under construction and not yet started - to 471,000. That equals a 9.8-month supply, which ties January for the highest supply since 1981.

Total inventory fell by 10,000 homes in the month, according to the Census Bureau, but the report does not include purchases that were cancelled and sent back to the builder.

"Inventories are still very high," said Seiders, who believes that inventories need to be whittled down to a five or six month supply to restore the balance to supply and demand.

Still, prices will continue to fall as there are more signs of housing weakness. Sales slip amidst sharp price declines. Price cuts are still inevitable till early 2009. People who will buy today must consider staying in the home they recently bought for long if he/she wants to see an appreciation in value.