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US new home sales post steepest drop in decades

Pads for new home construction are left dormant on Monday under a stormy sky in Rancho Cucamonga, California, site of a recent housing boom. New home sales last month tumbled to their lowest in 12 years. PHOTO: AFP

The housing industry, caught in a maelstrom of sinking demand, rising foreclosures and bulging inventories, is in its worst slump in decades, a growing body of economic evidence shows.

Sales of new homes last year fell 26 percent, the steepest drop since records began in 1963, the US Department of Commerce said.

Last week, the National Association of Realtors reported that sales of previously owned single-family homes, a large portion of the overall housing market, dropped the most on an annual basis in 25 years. And the median price of those homes fell for the first time in at least four decades.

Some economists predict the market may start to recover in the summer. Others are less optimistic.

"There is no sign of a bottom in any of these data," wrote Ian Shepherdson, a London-based economist at High Frequency Economics.

Last month alone, sales of new homes fell 4.7 percent to a 604,000 annual rate, the smallest monthly sales figure since February 1995.

Prices also fell sharply. The median price of a new home last month fell to US$219,200, down 10.9 percent from December 2006.

"No matter which way you look at it, the December new-home sales report is simply awful," wrote Dimitry Fleming, an economist at ING Bank.

Last month capped a painful year for home builders, who watched demand dry up as buyers abandoned contracts or stayed on the sidelines with the expectation that prices would fall further. For the year, the median price of new homes rose just 0.2 percent to US$246,900.

A wave of foreclosures and tightened lending standards have made it more difficult to obtain a mortgage, even for buyers with good credit. And banks have been more reluctant to lend in light of the subprime mortgage crisis.

Builders are trying to lure buyers by dropping prices and throwing in incentives like new appliances. They have also cut back on new construction.

However, the strategy has failed to make a dent in inventories: The backlog of new homes on the market ticked up last month to 9.6 months' supply based on the current sales rate, the Commerce Department said.

Sales of new homes last month were down in most regions, with the steepest declines in the south and west. Midwest sales fell slightly, and there was a small uptick in the northeast.

Compared with December 2006, sales decreased 56 percent in the midwest, 43 percent in the west, 36 percent in the south and 27 percent in the northeast.

The Commerce Department also lowered its numbers for new-home sales in November to a 634,000 annual pace. It originally gave an estimated rate of 647,000.
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