New home sales hit 12-year low

The pace of new home sales fell to the lowest level since April 1995, leaving the market with a record glut of completed new homes on the market.

NEW YORK (CNNMoney.com) -- Sales of new homes have plunged even more than expected to their lowest level in more than 12 years, leaving the market glutted with unsold homes and pointing to more trouble ahead for the battered housing market.

New home sales tumbled 9 percent in November to a seasonally adjusted annual rate of 647,000, according to a Census Bureau report Friday.

That was the worst showing since April 1995, when the pace of sales was 621,000, and is much worse than the 715,000 sales pace forecast by economists surveyed by Briefing.com.

The sales pace is down more than a third from year-ago levels. Furthermore, the decline is widespread nationwide, ranging from a 28 percent drop in the Northeast to a 38 percent plunge in the Midwest.

The weak sales pace still probably overstates demand for new homes since it counts a home as sold when a contract is signed, even though in many cases a contract is cancelled before a sale is closed. In fact, most major builders have reported sharp increases in cancelled orders in recent months because buyers have struggled to arrange financing or sell their existing homes.

While the median sales price of $239,100 in November represented a 4.2% jump from October, that previous reading was the lowest in more than two years. The new price reading is still off 0.4 percent from year-earlier levels and off 8.9 percent from the record high price of $262,600 hit in March before the full impact of the meltdown in subprime mortgages was felt.

Michael Larson, a real estate analyst with independent research firm Weiss Research, said the report understates price weaknesses because it does not account for the incentives like picking up buyers' closing costs builders are using to spur sales.

"You see the builders are still struggling to get the business right," said Larson. "They're cut back on production; now they've got to get that pricing right to get the buyers to move."

The glut of new homes on the market rose to a 9.3-month supply, as the number of completed homes for sale reached a record 193,000 at the end of the reporting period. Builders now typically have to wait 6.2 months to sell a completed home, the longest wait since July 1993.

While new home sales make up only a fraction of the overall real estate market, this report is closely watched as a more leading indicator of market strength than the report on existing home sales, which is due out Monday from the National Association of Realtors. The existing home sales report tracks existing home sales when they are closed, typically a month or two after a sales contract is signed.

Economists surveyed by Briefing.com forecast that existing home sales edged up to a 5 million annual sales rate in November from October's 4.97 million, which was the weakest sales reading of existing homes on record despite the largest drop in prices.

The downturn in new home sales has hammered the results of the nation's leading home builders. Many of them have been forced to take large charges to writedown the value of their holdings.

A month ago Lennar (LEN, Fortune 500), the No. 1 home builder by revenue, reported that it was selling 11,000 properties to the real estate arm of Wall Street firm Morgan Stanley (MS, Fortune 500) for only 40 percent of their previously stated value.

The charges taken by many builders have caused many builders to report larger-than-expected losses. D.R. Horton (DHI, Fortune 500), the No. 3 builder, reported a smaller-than-expected loss in late November, but that followed a quarter with a loss that was much wider than forecast.

Hovnanian Enterprises (HOV, Fortune 500), the nation's No. 6 builder by revenue, posted a full-year loss this month and said the market remains very challenging, prompting credit rating agency Moody's to say it was reviewing whether to downgrade its debt further into junk-bond status.

In October, Moody's downgraded the debt of Lennar, No. 2 builder Centex (CTX, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) to junk bond status.

Earlier this month, luxury home builder Toll Brothers (TOL, Fortune 500) posted its first loss in 22 years as a public company.