WASHINGTON -- Americans bought slightly more new homes in October, a hopeful sign for the troubled housing market. But the median sales price fell to its lowest level of the year, and the overall sales pace is trailing last year's -- the worst in half a century.
The report suggests that housing continues to drag on the U.S. economy and is a long way from recovering.
New-home sales increased 1.3 percent last month to a seasonally adjusted annual rate of 307,000, the Commerce Department said Monday. That's less than half the 700,000 that economists say must be sold to sustain a healthy housing market.
September's figures were also revised down significantly to show a weaker pace than first estimated.
Last year's 323,000 new homes sold were the fewest since the government began keeping records in 1963. This year isn't faring much better.
While new homes sales represent a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.
Many builders have stopped working on new projects because they can't obtain financing. The number of new homes for sale in the United States fell in October to a record low of 162,000.
They are also struggling to compete against cheaper re-sales, even as they lower their own prices. The median sales price of a new home fell 0.4 percent in October from September, to $212,300.
Steven Wood, chief economist at Insight Economics, said the small number of new homes for sale should help the housing market recover quicker when prices begin to rise. But he said: "A sustained rebound in new home sales appears unlikely."
For many Americans, buying a home is too big a risk more than four years after the housing bubble burst.
Home prices have tumbled, the job market remains weak and unemployment has been stuck near 9 percent for more two years. Some people who want to buy can't qualify for a loan or make the higher down payments that banks are demanding.
Sales are slumping even though mortgage rates are hovering above historic lows.
Yet sales of previously owned homes are also dismal. They rose slightly last month to a seasonally adjusted annual rate of 4.97 million units, the National Association of Realtors said last week. That's below the 6 million that economists say is consistent with sales in a healthy market and barely ahead of last year's totals, which were the fewest since 1997.
In October, sales were uneven across the country. They increased 22.2 percent in the Midwest and 14.9 percent in the West. But they were unchanged in the Northeast and fell 9.5 percent in the South.
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With housing prices down and mortgage rates at all-time lows, the real estate market is ripe for investors looking to cash in on the one sector that's booming: rental demand. As a recent Move.com report suggests, college towns make the perfect fit for would-be landlords: Growing enrollment means demand for off-campus housing will only increase. Pair that stability with an expected 5% rise in rental rates, and university towns emerge as very promising real estate investment territory. Here are Move.com's 10 top towns for real estate investors.
Median List Price: $335,000
Y/Y% Change: -2.62%
Average 2 Bedroom Rent: $3,122
Average 3+ Bedroom Rent: $3,913
Average Mortgage: $1,370
Home to two of the top-ranked colleges in the U.S., Harvard and MIT, it hosts 48 others as well. The median list price is second highest in the rankings, while the average rental rates top all others.
Median List Price: $189,900
Y/Y% Change: -0.05%
Average 2 Bedroom Rent: $949
Average 3+ Bedroom Rent: $1,020
Average Mortgage: $770
Nashville encompasses 16 colleges and universities, including top-ranked Vanderbilt University. Many of the school dorms are filled to capacity, according to Move's report, forcing a significant number of students to seek off-campus housing.
Median List Price: $199,900
Y/Y% Change: -16.36%
Average 2 bedroom Rent: $1,780
Average 3+ Bedroom Rent: $2,074
Average Mortgage: $820
The No. 1 most searched city in the country on Realtor.com in June, Chicago hosts a number of universities including No. 12 ranked University of Chicago. The difference between mortgage and rental rates creates the potential for significant profit margins.
Median List Price: $242,700
Y/Y% Change: -7.72%
Average 2 bedroom Rent: $1,443
Average 3+ Bedroom Rent: $1,663
Average Mortgage: $990
Home to the No. 1 ranked university Johns Hopkins University Baltimore's median list price is fairly high on the list. But those prices are falling. In June, the city was the 19th most searched market on Realtor.com.
Median List Price: $163,945
Y/Y% Change: -3.41%
Average 2 bedroom Rent: $1,016
Average 3+ Bedroom Rent: $1,283
Average Mortgage: $670
St. Louis has a median list price of $163,945 and its rental rates provide generous profit margins.
Median List Price: $375,000
Y/Y% Change: 5.63%
Average 2 bedroom Rent: $3,086
Average 3+ Bedroom Rent: $3,214
Average Mortgage: $1,530
As Washington, D.C. further revamps its image, already pricey rental rates will continue to increase. The city hosts more than 20 colleges, including Georgetown University.
Median List Price: $159,600
Y/Y% Change: -13.68%
Average 2 bedroom Rent: $1,236
Average 3+ Bedroom Rent: $1,485
Average Mortgage: $650
Atlanta boasts 19 colleges, and its average two-bedroom property pulls in almost twice as much revenue as what an owner must pay in mortgage costs.
Median List Price: $174,900
Y/Y% Change: -0.06
Average 2 Bedroom Rent: $1,218
Average 3+ Bedroom Rent: $1,478
Average Mortgage: $710
Houston has more than 10 colleges and universities, and its low-priced inventory makes buying there a promising investment that could pay off in the future.
Median List Price: $112,900
Y/Y% Change: 7.53%
Average 2 bedroom Rent: $790
Average 3+ Bedroom Rent: $880
Average Mortgage: $460
South Bend has 12 colleges and universities, whose rental rates provide healthy profit margins. But perhaps the biggest draw of the place is that its home price market appears to be on the upswing, even as so many others in the country continue to limp along.
Y/Y% Change: -3.13%
Average 2 bedroom Rent: $838
Average 3+ Bedroom Rent: $970
Average Mortgage: $630
Syracuse, located in upstate New York, has a number of local colleges and universities with students who must appreciate the low rental rates there. At $154,900, its median listing price is below the national average of $189,900.