Sales of new homes in the United States dropped to the lowest level in 13 years in February as loan restrictions tightened and the prospect of even lower prices held back potential buyers, Bloomberg reported.

Sales fell 1.8 percent, in line with forecasts, to an annual pace of 590,000, the lowest level since February 1995, the Commerce Department said today. January purchases were revised higher. The median price decreased 2.7 percent from a year earlier. The decline in sales, now in its third year, has caused builders to reduce activity and is hurting other parts of the economy as consumers and businesses have a harder time getting credit.

Economists had forecast new home sales would decline to an annual pace of 578,000, according to the median of 71 forecasts in a Bloomberg News survey. Estimates ranged from 560,000 to 600,000. Purchases in January were revised up to a 601,000 annual pace from a previously estimated 588,000.

The number of new homes for sale at the end of February dropped to 471,000, the fewest since July 2005, indicating builders are making progress in clearing out the inventory surplus. Still, the decline in sales kept supply at 9.8 months, the same as in January and the highest since 1981. Elevated inventories are pushing down prices as builders struggle to sell homes they have already built. The median price fell to $244,100 last month from $250,800 in February 2007. Builders have been holding back on constructing new homes to try to limit inventories. Building permits fell to the lowest level in 16 years in February. Residential construction decreased at a 25 percent pace in the fourth quarter of 2007, the government reported last month.