Pfffffffffffftttt

That's the sound of a bubble deflating, rapidly:

WASHINGTON—United States new-home sales plunged in February by the largest amount in nearly nine years, while the median price of a new home dropped for the fourth-straight month, providing fresh evidence the once-booming housing market is cooling off.

The commerce department said yesterday sales of new single-family homes dropped 10.5 per cent last month to a seasonally adjusted annual sales pace of 1.08 million homes.

It was the second straight monthly decline and was much bigger than the small 2 per cent dip Wall Street was expecting.

The drop in new-home sales followed news Thursday that sales of previously owned homes actually rose a stronger than expected 5.2 per cent last month after five straight monthly declines.

That last paragraph - stronger previously-owned home sales - sounds deceptively reassuring, but it shouldn't. When already-built homes sell strongly, that's doesn't make up for less housing starts, it replaces them entirely. This is because well over 90% of homes already have owners. The market in real estate plunges not because of new production, but because people who already have homes decide that now's the time to sell.

So you combine a dramatic decline in new construction with an increase in older homes being sold, and you've got the textbook definition of the housing market going keplooey.