U.S. new-home sales drop to 12-year low

Tuesday, January 29, 2008 at 2:30am

Purchases of new homes in the U.S. unexpectedly fell to a 12-year low in December, ending the worst sales year since records began in 1963 and signaling little prospect for a recovery.

Sales decreased 4.7 percent to an annual pace of 604,000, the Commerce Department said Monday in Washington.

The median price dropped 10 percent from December 2006, the most in 37 years.

“Today’s numbers are a new blow,” said Chris Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who forecast a decline to 613,000. “The broader economy is very, very close to falling over the edge. The Fed really needs to think aggressively.”

The dollar extended its drop as the figures spurred speculation the Federal Reserve will keep reducing interest rates. The report may also reinforce concern that declining home prices and stricter lending will lead to more foreclosures and hurt consumer spending.

Stocks did climb on Monday as investors bet the Fed will lower borrowing costs by half a percentage point this week to help the economy. The Standard & Poor’s Supercomposite Homebuilding Index, which includes KB Home, Pulte Homes Inc. and D.R. Horton Inc., rose 3.7 percent to 349.84 at 3:09 p.m. in New York. The S&P 500 also increased.

Economists had forecast new home sales would be unchanged from an originally reported 647,000 rate the prior month, according to the median estimate in a Bloomberg survey of 62 economists. Forecasts ranged from 595,000 to 680,000.

The median price of a new home fell to $219,200 in December from $244,700 a year earlier, today’s report showed. For all of 2007, the median price rose 0.2 percent to $246,900.

New-home purchases in December were the fewest since February 1995, and followed a 634,000 rate the prior month. For the year, sales dropped 26 percent, the most since records began in 1963.

“We are in deep recession lows now in terms of new home sales and housing starts,” said Lincoln Anderson, chief economist at LPL Financial Services in Boston. “We’re seeing a bottoming, but it’s a lot lower bottom than I expected.”

Even as builders reduced inventories, the drop failed to keep pace with the decline in sales, pushing up the month’s supply. The number of homes for sale fell to a seasonally adjusted 495,000 in December, the fewest since October 2005.

At the current sales pace, it would take 9.6 months to sell all those houses, the most in over two decades.

Purchases dropped in three of four regions, led by a 6.5 percent decline in the South. The Northeast was the only region that registered a gain.

“With sales like this, that just encourages further cuts in housing starts,” said Ethan Harris, chief economist at Lehman Brothers Holdings Inc. in New York. “The economy is looking a lot worse. It leans the Fed certainly toward more rather than less rate cuts.”

The Fed on Jan. 22 cut the benchmark interest rate by three-quarters of a percentage point, its first emergency reduction since 2001, after global stock markets tumbled on increasing signs of recession.

Policymakers said “incoming information indicates a deepening of the housing contraction” and “a weakening of the economic outlook,” in announcing the decision.

The central bank will lower the rate target by another half point on Jan. 30, according to trading in fed funds figures.

The government’s economic stimulus plan last week also seeks to address the housing slump. The accord includes a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies, to temporarily buy mortgages of as much as $729,750, exceeding the current $417,000 federal limit.

Sales of previously owned homes, which account for about 85 percent of the market, fell more than forecast in December, capping the biggest yearly slump in more than a generation, the National Association of Realtors said last week.

The median price of an existing single-family home dropped 1.8 percent in 2007, the first decline since records began four decades ago and probably the first since the Great Depression in the 1930s, the Realtors group said.

New-home purchases are considered a timelier indicator because they are based on contract signings, while existing home sales are calculated when a contract closes, usually a month or two later.

“These are extremely difficult times for all homebuilders,” Steven J. Hilton, chief executive officer of Meritage Homes Corp., said in a Jan. 17 statement.

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By: BADCOPS on 12/31/69 at 6:00

The older homes are built better than the newer homes. I would rather have a turn of the century home than a new one.I think with the prices dropping it is an excellent time to buy homes. Get more house for the money now.It's a buyers market. Go buy that house.

By: idgaf on 12/31/69 at 6:00

Seems like the illegals built homes quicker then they were actually needed.Once you start selling houses to those who couldn't afford to buy them to begin with who else is there to buy?Prics will back off to affordable levals then people and/or investors will start buying again.

By: Muzhik on 12/31/69 at 6:00

Even worse, the Current Year December vs Previous Year December drop was over -46%. That was so bad that the writer didn't mention it. Housing has tanked. Japan has been mired in a real estate decline for over a decade. I'm not convinced that US real estate will be a good investment for a long, long time. Foreign property REIT's are not doing well either.

By: Blanketnazi2 on 12/31/69 at 6:00

Yeah, real estate is not a good investment. It's fine if you want to buy a house that you want to live in for a long time.... I agree with BADCOPS that the older homes are much better quality. I have an older home myself and am happy with my decision.

By: crackcitytn on 12/31/69 at 6:00

I heard yesterday the real estate market will rebound in 6 months.I also like the older victorian homes over the new ones.It's called character and quality. Something the new one just don't have.

By: girliegirl on 12/31/69 at 6:00

Several things wrong with your theory about the newer homes today:1. They perform outstandingly when it comes to energy use/conservation. 2. They are easy to maintain. You'll spend a fortune just "maintaining" an older home these days. I've done both now!3. They have all the trappings that a user is looking for like sunken large bathtubs, tall ceilings, updated wiring, gas fireplaces, pre-wiring for security, easy access in and out of the home, updated kitchen appliances (thank you Jesus), and easy to clean countertops. There are sooooooo many options on the front end of building a new home, the sky (and your budget) is the limit. And they come with warranties. Some of the country's best builders are right here in this area. It all depends on WHERE you build~ If you look out by Opryland area, there are affordable homes with nice neighborhoods, low crime if any, and great schools. Then further out you have the Old Hickory are where new homes are being built all the time, and they're affordable, unlike those in the southern part of Davidson County. I'd highly suggest local builders if you are interested. And the first thing you want to look at is the lot price. If it's already over-priced because of its location, move on. The taxes will be higher, and that's just plain nuts. Money flushed is money flushed, right? If the lot price is over half the price of the house, forget it. Especially in this market. And remember, comparatively, we're doing better in our housing market than most of the other major cities right now.

By: girliegirl on 12/31/69 at 6:00

Hey, Crackcitytn, may I suggest contacting Danny Roark. He builds excellent high-quality homes that put to shame all those old nasty victorian homes you so adore. He'll make your jaw drop with what he can product! And his have top of the line home theater systems that Bredesen would envy. LOL And best of all, you don't have to live near all that ridiculous Green Hills traffic nonsense~ or even in Williamson County.

By: Fundit on 12/31/69 at 6:00

girlie girl, talk to me about your new home in 20 years. While my 100 year old will be still standing and worth at least 5 times what I paid, I guarantee your new abode will be junque and you might break even.

By: MJB on 12/31/69 at 6:00

This squabble between newer vs. older houses is silly. There are well-built older houses, and there are older houses that should be razed. There are well-built newer houses, and there are shoddy, tacky, or garishly gargantuan newer houses.I agree with BadC. & with Blanket that now is a good time to buy a house, but plan to live in it for a while.This drop in housing prices is simply the start of a correction for over-inflated prices. It’s not such bad news, except for the too many of us who have taken on too much debt while counting on our houses to continue to grow in value. We need to stop getting so deeply into debt. The typical American has TEN THOUSAND DOLLARS in CREDIT CARD DEBT! It is moronic.(Glancing at Id’s remark makes me glad again that I ignore his remarks.)(Girlie, Jesus had no kitchen appliances.)

By: NewYorker1 on 12/31/69 at 6:00

I have an older home in the Green Hills area and my home was well kept by the previous owners. I Love my older home. It has hardwood floors throughout the entire house, two fireplaces, cathedral ceilings in the living room and foyer, granite counter tops in the kitchen and all the restrooms, built-in book shelves in the study, and built-ins in all the closets. The previous owners had a professional coy pond installed out of natural stone in the back yard with a water stream flowing into it. The only thing I've done to the house so far is had professional landscape lighting installed in the front and back of the house. What I like the most about my older home are the mature trees surrounding it. That's my favorite part.

By: Fundit on 12/31/69 at 6:00

I gotta agree with MJB here. But where I live, the residents are complete home snobs and have become the taste police as well. I guess it has rubbed off on a little. My apologies.