Drop in new home sales sets record
Sales of newly built homes sank last year at the steepest pace since record-keeping began in 1963 - and home builders expect their worst recession in decades to persist until at least the middle of this year.
New home sales totaled 774,000 in 2007, off a staggering 26 percent from 2006, the Commerce Department said Monday. And the drop could turn out to be even more dismal: Last year's figures are expected to be revised down next month after contract cancellations are counted. The median price was nearly flat at $246,900.
"The situation seems to be getting worse," says Jerry Howard, CEO of the National Association of Home Builders, who expects the market to bottom in the spring. The 9.6-month supply of new homes for sale - a record - is "really distressing," he adds.
Since peaking in July 2005, new home sales have plunged nearly 57 percent, and construction permits have fallen to half the level they were then.
"Home builders are cutting production, but with sales still collapsing they have to run to stand still," says Ian Shepherdson of High Frequency Economics. "There is no sign of a bottom in any of these data."
For December, new home sales fell nearly 5 percent from November, to a seasonally adjusted annual rate of 604,000, down close to 41 percent from the previous December. For the month, the median price - at which point half the homes cost more, half less - was $219,200, a stunning 10 percent decline from the year before and the largest drop in 37 years.
Kim Shelpman, CEO of Holiday Builders based in Melbourne, Fla., says she's cut prices back to 2003 levels. "Obviously, in the short term, the outlook is quite bleak," she says. Still, she adds that the recent drop in mortgage interest rates has led to more potential buyers visiting Holiday's communities and its Web site.
In markets where prices are sliding fast, there are deals aplenty for buyers like Jennifer Tischafer and her boyfriend, Brian Ignacio, who bought a home last month from KB Home in Gilbert, Ariz.
If the price of their $215,000 home drops in value before all the lots in the development are sold, KB Home says it will pay them the difference.
"We decided after a couple years of renting together, we wanted to buy a house," says Tischafer, 29.
The NAHB says about 4 percent of builders were guaranteeing home values, 58 percent were offering price cuts, more than half were paying some buyers' closing costs and 61 percent were offering free upgrades, according to its November survey of about 400 builders nationwide.
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