New home sales fall to slowest pace since 1991

updated 11:43 a.m. ET Nov. 26, 2008

WASHINGTON - Sales of new homes fell in October to the lowest point in nearly 18 years while the median price of a new home dropped to the lowest level since 2004.

The Commerce Department reported Wednesday that new home sales decreased 5.3 percent last month to a seasonally adjusted annual sales pace of 433,000 homes, the lowest level since January 1991, another period when the country was undergoing a steep housing downturn.

The median price of a new home sold in October fell to $218,000, down 7 percent from a year ago. It was the lowest median sales price since September 2004.

The drop in new home sales was bigger than analysts had expected and left sales 40.1 percent below where they were a year ago.

The bad news on new home sales follows other reports this week that paint a bleak picture of the housing industry.

On Tueday, a report on home prices and downbeat earnings results from homebuilder D.R. Horton showed further deterioration in the housing market. The Standard & Poor's/Case-Shiller U.S. National Home Price Index said home prices tumbled a record 16.6 percent during the third quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.

Fort Worth, Tex.-based D.R. Horton Inc. reported a nearly $800 million loss in its fiscal fourth quarter on slower home sales and more than $1 billion in charges.

A report Monday showed sales of existing homes fell a bigger-than-expected 3.1 percent in October to an annual rate of 4.98 million units. The median or midpoint price for existing homes plunged to $183,000, down 11.3 percent from a year ago.

The disappointing performance for both new and existing homes showed that the country is still in the grips of a severe housing downturn.

The problems in housing have sent shockwaves through the entire economy as mounting mortgage foreclosures have cost banks billions of dollars in loan losses, creating the worst financial crisis to hit the country in seven decades.

President-elect Barack Obama has said Congress should begin working on a sizable stimulus program even before he is sworn in on Jan. 20, with the goal of creating 2.5 million jobs over the next two years to keep the economy from falling into a prolonged recession. The housing industry also is appealing for help from the new administration.

The report on new home sales showed sales were down 18 percent in the West and 6 percent in the South.

Sales posted a 22.6 percent increase in the Northeast and were up 6 percent in the Midwest.

The drop in sales pushed the inventory of unsold homes up to 11.1 months, meaning it would take that long to exhaust the stock of unsold homes at the October sales pace.

Builders, who have been slashing production in an effort to get control of inventories, are being faced with soaring mortgage defaults which are dumping more unsold homes on an already glutted market.

The National Association of Home Builders reported last week that its survey of builder confidence fell to an all-time low of 9 in November, down from 14 last month. Index readings higher than 50 indicate positive sentiment about the market. But the trade group's index has drifted below 50 since May 2006 and below 20 since April.

The housing slump already has cost the country 3 million jobs in construction and related industries, and the home builders are urging Congress to help with increased support for the industry.

Tighter lending standards, rising defaults and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as Pulte Homes Inc. and Centex Corp.

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