New Home Sales Plummet to Near-Record Low

The start of autumn did not bring good news to the nation's housing industry, as new home sales unexpectedly plunged 8.1% in October to a 283,000-unit annual rate -- equaling July's pace, and close to the all-time low of 275,000 hit in August.

A Bloomberg survey had forecast new home sales would rise to a 314,000-unit annual pace in October, after a revised 312,000 pace in September, up from the initial estimate of 307,000.

New home sales are now down 21.4% in the past year, compared to October 2009, roughly the same as the 21.2% year-over-year decline recorded in September.

Equally distressing, home inventories sustained a setback in October as well, rising to an 8.6-month supply at the current sales pace, up from an 8.0-month supply in September. Inventories are well above the normal three- to five-month levels.

October new home sales fell in every region, except the South, swooning 12.1% in the Northeast, 20.4% in the Midwest, and 23.9% in the West. They rose 3.1% in the South.

Median Home Price Plunges

The median home price plunged as well in October, tumbling a record 13.9% from September and 9.4% from a year ago to $194,900.

New home sales are down about 70% from the average 800,000-unit annual rate hit during the Roaring 90s, a period of strong U.S. GDP growth and job growth, and about 75% below the average 1.1 million-unit annual rate recorded during the 2002 to 2007 housing bubble. But almost no economist expects the U.S. housing sector to return to that lofty, problematic-mortgage-fueled level, due to more-modest gains in household formation, among other factors.

A Month Home Builders, Sellers Want To Forget

October is a month that home builders and sellers probably would like to blot out of their minds in a hurry, as it contained several sobering statistics.

First, new home sales are flirting with yet another all-time low, and the data base goes back more than 40 years.

Second, inventories remain at a very high level -- 8.6 months -- something that will discourage home-building, as construction companies formulate plans for the new building season in the spring 2011.

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Finally, while some of the record monthly decline in median home prices can be attributed to a seasonal drop-off in demand and the Sept. 30 closing deadline for the home-buyer tax credit, it also, no-doubt, reflects the glut of supply. As noted, inventories are high, and the market mechanism is taking effect -- sellers are lowering prices to reflect weaker demand conditions.

In sum, the new homes segment remains on life-support. Inadequate job growth, concern about the durability of the current U.S. economic expansion, and rigorous mortgage qualification requirements continue to depress sales. Each trend will have to reverse and endure over quarters to get new home sales headed higher in a sustained way.