MARKET PLACE

Builders Slash Prices 10%, But Sales Fall Anyway
WASHINGTON - U.S. builders slashed prices by more than 10% in December in a failed bid to boost sales, which dropped about 5% to the lowest level in nearly 13 years, the Commerce Department reported Monday.

For the year, sales declined at a record 26.4% pace.

"A lousy end to a lousy year," summarized Richard Moody, chief economist for Mission Residential. The grim figures show no relief in sight for a battered building sector and are certain to be a major item on the Federal Reserve's agenda for its two-day policy-setting meeting that begins Tuesday.

"The housing recession is still bottoming out," said Christian Menegatti, managing editor and analyst for the RGE Monitor.com.

Sales of new homes fell 4.7% to a seasonally adjusted annual rate of 604,000 in December, far below the 645,000 expected by economists surveyed by MarketWatch and the lowest sales pace since February 1995. December's sales pace was down 40.7% compared with December 2006.

The sales figures likely overstate the health of the building sector, since they don't include cancellations, which have soared in the past year.

Combined, sales of new and existing homes fell 24.6% in December compared with a year earlier, the biggest year-over-year decline since 1982.

November's sales pace for new homes was revised to 634,000, down from the 647,000 reported earlier. Large downward revisions to the data have become common.

Sales fell in three of four regions in December, with the Northeast showing a 6% gain. Sales dropped by 1% in the Midwest and by about 6% in the West and the South.

The median sales price tumbled a record 10.9% to $219,200 compared with November and were down 10.4% compared with a year earlier. It marked the biggest year-over-year drop in the median sales price since 1970.

Median sales prices can be influenced by the type of home sold and where those homes are sold. In December, sales of homes costing more than $400,000 fell fully 50% compared with a year earlier -- likely a reflection of how difficult it has become to qualify for a jumbo mortgage.

The average sales price fell a record 11.5% to $267,300 compared with December 2006.

The inventory of unsold new homes dropped to 495,000 from 502,000 -- but rose to a 26-year high in relation to sales, representing a supply of 9.6 months at the December sales pace. Inventories don't include homes thrown back on the market due to canceled sales.

The inventory of completed homes continued to move higher, and now represent nearly 40% of the homes on the market, the biggest percentage ever, up from 21% during the heart of the boom two years ago. "This figure will continue to put pressure on builders to move spec homes," wrote Adam York, an economist for Wachovia.

For all of 2007, home sales fell a record 26.4% to 774,000 compared with 1.05 million sold in 2006. Inventories fell 8% in 2007.

The median sales price rose 0.2% in 2007 to $246,900.
Government statisticians have low confidence in the monthly report, which is subject to large revisions and large sampling and other statistical errors. The standard error in December was plus or minus 12.1%. Longer trends do a better job of showing the reality of the housing market than volatile monthly numbers. For the annual figures, the standard error is just 2.5%. The government says it can take up to five months to establish a new trend in sales. Over the past five months, sales have been on a 669,000 annual pace, 33% slower than a year earlier. In 2006, 1.05 million new homes were sold.

Last week, the National Association of Realtors said sales of existing homes marked the sharpest annual decline in a decade, while median sales prices fell for the first time on record.

Source: Marketplace, January 28, 2008