Sales of new American homes plunged in February to the fewest on records dating back nearly half a century, a dismal sign for an already-weak housing market.

The Commerce Department said Wednesday new home sales fell 16.9 per cent last month to a seasonally adjusted annual rate of 250,000 homes. It's the third straight monthly decline and far below the 700,000-a-year pace that economists view as healthy.

The median price of a new home dropped nearly 14 per cent to $202,100, the lowest since December 2003. New home prices are now 30 percent higher than of those being resold.

Builders have struggled to compete with a wave of foreclosures that has lowered the price of previously occupied homes. High unemployment, tight credit and uncertainty over prices have also kept many potential buyers from making purchases.

"A more substantial pick-up in hiring activity is paramount for potential buyers to feel more comfortable stepping off the sideline," Scotia Capital economist Gorica Djeric said.

Earlier this week, the National Association of Realtors posted similarly bleak news about existing home sales. They dropped 9.6 per cent in February to a seasonally adjusted annual rate of 4.88 million. That's well below the upwardly revised 5.40 million level the agency observed in January, and still 2.8 per cent below the 5.02 million pace observed in February 2010.

"Home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers," the agency's chief economist Lawrence Yun said.

The low showing is still 26.4 per cent above the cyclical low seen in July 2010, Yun said,

With files from the Associated Press