New home sales fall to 17-year low
Sales pace of new homes lowest since January 1991 as prices hit a four-year low and inventory remains high.
NEW YORK (CNNMoney.com) -- The pace of new home sales fell to its lowest level in 17 years in August, according to a key government report released Thursday that signaled more dismal news for the housing sector in coming months.
August sales came in at a seasonally adjusted annual rate of 460,000, the Census Bureau report showed, down 11.5% from a revised 520,000 in July. The reading was well below the consensus forecast of 513,000, according to economists surveyed by Briefing.com.
The rate of sales was down 34.5% from a year earlier. Sales were at their lowest pace since January 1991, when the first Gulf War started, and the economy was near the bottom of a recession and undergoing an oil price shock. Excluding that month, you'd have to go all the way back to August 1982 to find a rate of sales so low.
"It's a stunning decline, but we're still going to be dealing with a tough market well into 2009 and maybe even 2010," said Mike Larson, an analyst with Weiss Research. "All indicators say we're heading into a recession, if we're not already in one."
On a non-seasonally adjusted basis, the report showed only 39,000 new homes were sold in July, which marks the lowest level for that measure since December 1991.
"It looks like we're in an absolute cliff dive, but we're coming down sharply from a very high level," Larson said.
The sale pace has fallen 66.9% from its peak of 1.39 million homes set in July 2005.
Prices: Sales fell as prices continued to drop. The median price of a new home sold in August was $221,900, down 5.5% from $234,900 in July and down 6.2% from $236,500 a year earlier. Prices for new homes on the market were at their lowest level since September 2004.
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.
Inventory: Prices have been driven down by the glut of new homes on the market.
The report showed 166,000 completed new homes available at the end of the month, bringing total inventory - including new homes under construction and not yet started - to 405,000, the lowest inventory since August 2004.
Still, the Census Bureau said that the number of homes for sale on the market is equal to a seasonally adjusted 10.9-month supply, up from a 10.3-month supply in July. By contrast, it took the 404,000 homes on the market just 3.7 months to be sold four years ago.
"The good news is supply is falling, it's just not fast enough," Larson said. "The government is doing everything it can to reduce supply by stopping foreclosures, but sales are still falling faster than inventories."
The report is just the latest sign of trouble in the overall housing market.
On Wednesday, the National Realtors Association reported existing home sales fell more than expected in August, as prices continued to fall and inventory hovered near a record high.