New home sales fall to near 18-year low
Government report shows sales of newly built homes fell more than expected to an annual rate of 433,000 in October.
NEW YORK (CNNMoney.com) -- Sales of newly constructed homes slumped in October to an annual rate not seen since 1991, according to government figures released Wednesday.
The U.S. Census Bureau reported that new home sales fell to an annualized rate of 433,000 in October. That's down 5.3% from the revised 457,000 annual rate recorded in September, and off more than 40% from a year ago.
"October was definitely another disappointing month for the home-building industry," said Mike Larson, real estate analyst at Weiss Research. But he added that the decline was not surprising given the ongoing weakness in the housing market.
October's sales pace was well below the consensus forecast of 450,000, according to economists surveyed by Briefing.com. And it was the lowest number since January 1991, when the sales rate was 401,000.
The number of new homes on the market decreased in October to an estimated 381,000 from 414,000 in September. At the current sales pace, it would take more than 11 months to sell through the inventory.
The median sales price of new houses sold in October was $218,000, down from $218,400 the month before. It was the lowest level since June 2004, when the median home price was $215,700.
Looking ahead, sales of new homes should remain weak for the next several months, according to Adam York, economic analyst at Wacovia Economics Group.
"Consumers are reluctant to spend in an uncertain economic environment, and banks are reluctant to lend given the falling value of homes," York wrote in a research note.
Still, analysts say the declining number of homes on the market are a positive sign. Inventories have fallen for 19 months in a row and are down more than 25% from October 2007.
As sales have plummeted, homebuilders have drastically scaled back production.
"New home construction has absolutely collapsed," Larson said. "Without that supply coming into the market you're seeing sales of new homes decline."
Meanwhile, falling mortgage rates could draw some reluctant buyers into the market, Larson said.
Mortgage rates fell sharply Tuesday after the Bush administration announced it will pump another $800 billion into credit markets to free up frozen consumer and mortgage lending.
Rates for a 30-year, fixed rate loan, were quoted at 5.77% on average Tuesday, down from 6.06% Monday. They fell as much as 0.75 percentage points during the day.
"The Fed's announcement is likely to drive mortgage rates down further," Larson said. "If we see lasting improvement, it's possible we may get a pop in the market." 
