New home sales plummet

WASHINGTON — New home sales plummeted by nearly 15 percent last month as builders struggled to unload a glut of homes on the market, according to new government data. That month-over-month drop caps one of the worst years on record.

Sales fell 44.8 percent compared with the same period a year earlier. The market was weakest in the Northeast and West. Sales in those regions fell by 50 percent and 47 percent, respectively.

“I am surprised they are this bad,“ said David Crowe, chief economist for the National Association of Home Builders. In the South, the region that includes Washington, sales were down 12 percent; they were off 6 percent in the Midwest.

In all of 2008, only 482,000 new single-family homes were sold, down 37.8 percent from 2007. That is the biggest year-over-year decline in sales on record, according to the Commerce Department.

The new home sales figures were “miserable,“ Abiel Reinhart, an analyst for J.P. Morgan Chase Bank, said in a research note. “Because supply and demand in the new home market are still so unbalanced, it now appears likely that the months’ supply of homes will not reach comfortable levels until early 2010,“ he said in a research note. “The supply-demand imbalance also implies that any rebound in home construction activity—even a mild one—is still a number of quarters away.“

Prices also tumbled. The median price for homes sold in December was $206,500, falling 9.3 percent from $227,700 a year earlier. Median prices have fallen to 2004 levels. It was the biggest drop since 1970. The median price for all of 2008 was $230,600, down from $247,900 in 2007.

Despite industry efforts to cut supply and prices, there are still too many homes on the market. It would take 12.9 months to sell all the homes on the market at the current rate, according to the Commerce Department data. That is the worst sales rate on record.

The current number of for-sale homes might have been acceptable two or three years ago, but the sales rate was much faster then, Crowe said. “The current rate of run-off is horrible,“ he said.

While new homes continue to sit on the market, in certain pockets of the country, existing homes are being snapped up by bargain hunters, according to industry data released this week. But that market is being fueled by foreclosed homes that have weighed down prices.

In many markets, builders are competing against homes they constructed just a few years ago that are now on the resale market, said Kenneth Wenhold, director of the Mid-Atlantic region for Metrostudy, a research firm. “Resales prices are so low in a lot of markets, it is below the cost of what it costs the builder to build it,“ he said.

Prices in the new home market can’t come down much more, Crowe said. About 60 percent of builders surveyed by his association have said that they are no longer making a profit from home sales. “You’re paying people to take your house at that point,“ he said.