New home sales near a 13-year low

January new home sales fell 2.8%, reaching the lowest levels since February 1995.

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NEW YORK (CNNMoney.com) -- New home sales slipped to a nearly 13-year low in January, according to a key government report on the battered housing market.

January sales came in at a seasonally adjusted annual rate of 588,000, the Census Bureau report showed, down 2.8% from 605,000 in December. Sales fell 33.9% from the same month last year and hit their lowest levels since February 1995.

The reading was below the consensus forecast of 600,000, according to economists surveyed by Briefing.com, and was the lowest reading since the 559,000 rate reported in February 1995.

The median price of a new home sold in January was $216,000, down 4.3% from $225,600 in December and 15.1% from $254,400 a year earlier.

This decline probably doesn't accurately capture the weakness in prices for new homes, as about three out of four builders have reported having to pay buyers' closing costs or offer other incentives such as expensive features for free in order to maintain sales.

"Buyers are having confidence problems," said Michael Larson, analyst at Weiss Research. "People don't want an instant loss of equity, and more people are having trouble qualifying for loans."

Prices have also been driven down by the glut of new homes on the market. The report showed 195,000 completed new homes available at the end of the month, bringing total inventory - including new homes under construction and not yet started - to 482,000, equal to just below a 10-month supply.

Builders were finding it typically takes 6.7 months to sell a completed home in the current market, according to the report.

"The excess supply is the highest we've seen in a long while," said Larson. "Contractors are trying to get ahead of the problem, but the strategy builders are undertaking is to keep lowering prices."

Despite contractors aggressively reducing housing starts, the downturn in housing and homebuilding has hammered the results of the nation's largest builders.

Luxury homebuilder Toll Brothers (TOL, Fortune 500), the No. 7 builder by revenue, reported a sharp drop in revenue when it released first-quarter earnings early Wednesday, saying "ceaseless talk of a recession continues to dampen the mood of consumers."

Earlier this month, D.R. Horton (DHI, Fortune 500), the No. 2 homebuilder by revenue, reported a much steeper-than-expected loss in the fourth quarter. That followed a report last month from No. 3 Lennar (LEN, Fortune 500) that showed a $1.25 billion fourth-quarter loss, the largest in the company's history.

In addition No. 1 Centex (CTX, Fortune 500), No. 4 Pulte Homes (PHM, Fortune 500) and No. 5 KB Home (KBH, Fortune 500), all reported fiscal fourth-quarter losses far worse than forecasts in January, as did No. 6 Hovnanian Enterprises (HOV, Fortune 500) when it reported fiscal fourth-quarter results in December.

The report is the latest sign of trouble in the overall housing market.

On Monday, the National Association of Realtors reported existing home sales fell to the lowest pace since the group began reporting annual sales rates in 1999. On Tuesday, the Standard & Poor's/Case-Shiller Home Price index showed the biggest annual drop in its 20-year history.

Amid a struggling U.S. economy, coupled with a credit crisis, we may not see an end to the housing market meltdown for quite a while.

"We may not pull out of this for another 5 years," said senior economist at the Credit Union National Association, Mike Schenk, who believes that housing's cyclical cycle will translate into a prolonged slump.

The latest housing boom was about nine years long, and there's a way to go to undo some of the excess, Schenk believes.

"Prices were up 45% over the last boom," said Schenk. "Prices that are down 10% do not return us to normalcy."