Behind the Numbers: New-Home Sales Hit Record Low

Another year, another record low for sales of new homes.

Sales unexpectedly fell in December, putting the brakes on three months of increases, indicating that the hard-hit sector might not have hit bottom after all.

Sales fell 2.2% from the prior month to a rate of 307,000 annualized. Economists surveyed by Dow Jones Newswires had forecast sales would tick up 1.9%. The total in 2010 was 323,000, the lowest amount since record keeping began in 1963.

Particularly concerning is that December’s prices plunged 12.8% from the prior year to $210,300, a blow to anyone hoping prices had stopped falling. While that figure can be distorted because of the geographic mix – homes in the Northeast cost more; the South is cheaper – prices must stabilize for any recovery to take hold.

The numbers depressed shares of home builders, which have risen dramatically as investors bet on a stronger spring selling season. Shares of NVR Inc., which reported a weak fourth quarter earlier Thursday, fell 6.5%, while luxury builder Toll Bros. declined 3.3%. The DJ U.S. Home Construction Index was shaved by 2.9%.

Home builders continue limping through the worst downturn in generations, one that has forced plenty builders out of business. They’re battling competition from bargain-priced foreclosures, jitters from consumers afraid to buy and tight lending standards from burned lenders.

But there is optimism that 2011 will be the absolute bottom and sales will pick up from the current anemic level. Of course, we’ve heard that before.

Here’s what industry watchers say:

Paul Diggle, economist, Capital Economics: “The fledgling recovery in housing market activity has yet to encompass the new homes market, where sales fell in December. The bottom line is that new home sales are unlikely to rise significantly from their current ultra-low level while they are having to compete with deeply discounted foreclosures and short sales.”

Aichi Amemiya, economist, Nomura: “Although recent housing-related economic releases have pointed to some improvement in the single-family housing market, today’s report surprised on the downside. This was the first decline in new home sales since August 2011 and the largest since July 2011.”

Dan Oppenheim, builder analyst, Credit Suisse: “We think the lower sales is a reflection of buyers’ continued uncertainty regarding the stability of home prices, the economy, and overall job security. We expect trends to remain choppy from month to month.”

Patrick Newport, US economist, IHS Global Insight: “The number of new homes for sale also ended the year at a record low at 157,000 (this is good news: inventory will have to be re-stocked once demand picks up). Inventory was at an all-time low at the end of the year in all four regions.”

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