New home sales hit 9-month low

NEW YORK (CNNMoney.com) -- New home sales plunged to a 9-month low in December, according to a government report issued Wednesday.

The seasonally adjusted annual rate of new home sales dropped 7.6% to 342,000 last month, compared with a revised rate of 370,000 in November, the Census Bureau said.

Analysts surveyed by Briefing.com had expected December sales of new homes to hit an annual rate of 366,000.

"This is not a very encouraging number," said Mike Larson, a real estate analyst with Weiss Research. "You've got aggressive competition from banks and lenders trying to unload foreclosures, and many people are going to the existing home market because that's where the bargains are."

The largest December decline occurred in the Midwest, where the sales rate plunged 41% over the last 12 months.

While the market for new home sales has improved in the wake of the housing crisis, levels remain far below the July 2005 peak, when sales of new construction spiked to an annualized rate of nearly 1.4 million.

The rate of new home sales in November also disappointed analysts, plummeting 11.3%.

"What might be impacting sales in the last two months is a hangover effect because demand pulled forward earlier," said Larson. "What you're now seeing is the waning impact."

Price and inventory: There were 231,000 new homes for sale at the end of December. This marks the 32nd month of decline and leaves supply at the lowest level since April 1971, said Larson.

The current supply is enough to last for 8.1 months at the current sales rate, the Census Bureau said.

The median price of new homes sold in December was $221,300, up from $217,400 in the previous month. The average sales price was $290,600.

On Tuesday, the National Association of Realtors released its report on existing home sales for December, which sank 16.7% month-to-month to an annual rate of 5.45 million units.

Outlook: "These are some of the lowest levels in U.S. history," said Larson. "We're not going to see this go on forever, we're going to see rates stabilize."

Larson expects an uptick in demand, but not until "well into next year," once existing home inventory stabilizes.

"We're still oversupplied in that market, so until we work off that inventory we're not going to see anything spectacular happening in the new home market."