New home sales plunge to lowest on record
Government report shows sales of newly built homes fell to an annual rate of 331,000 in December, lowest since reporting began in 1963.
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NEW YORK (CNNMoney.com) -- Sales of newly constructed homes plunged in December to the lowest level on record, going back to 1963, according to a government report released Thursday.
The U.S. Census Bureau reported that new home sales fell to an annual, seasonally adjusted rate of 331,000 in December. That's down 14.7% from a revised 388,000 annual rate in November.
The December sales pace was 44.8% below the same month a year ago, when the annual rate of new home sales was 600,000.
Additionally, last month's sales pace was much lower than the consensus estimate of 400,000, according to economists surveyed by Briefing.com.
Sales are typically slow around the holidays. "This is horrible, but note that December always sees activity drop sharply," said Ian Shepherdson, Chief U.S. Economist of High Frequency Economics, in a written research note.
But there are also larger, more daunting forces at work. The problem that builders are facing is dirt cheap competition from existing, foreclosed homes.
"You have foreclosures rising and when banks foreclose, they sell those houses at rock bottom prices, and builders just can't compete in that market," said Patrick Newport, economist with IHS Global Insight.
The problem is very acute in the West - in particular Arizona, California and Nevada - where home prices have plummeted the most and the foreclosure rates have spiked the highest.
While the number of new homes sold plunged in December, the number of existing homes sold in the month showed a surprise jump, according to a report released earlier in the week. But that bump is largely attributed to a flood of foreclosure sales.
The number of existing homes sold in December rose 6.5% from the previous month, to an annual rate of 4.74 million units, according to a report released Monday from the National Association of Realtors. Plunging home prices - especially extreme foreclosure bargains - brought buyers back into the market. Still, total 2008 sales were down 13.1% from 2007.
The median sales price of new homes - which measures the price at which half of the homes sold for more and half sold for less - was $206,500, down 9% from $227,700 a year earlier. The average sales price was $246,900, 13% lower than the $284,400 average of a year earlier.
At the end of the month, there were a seasonally adjusted 357,000 new homes for sale, which represents an inventory level of 12.9 months at the current sales pace.
For all of 2008, 482,000 new homes were sold, down 37.8% from the year prior. In 2007, 776,000 new homes were sold, according to the report.
Elevated inventory levels of both new homes and existing homes will continue to put downward pressure on new home sales.
"With so many homes for sale on the market, it doesn't make sense for builders to build another home because he can't sell it and make a profit on it," said Newport. 
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