By Alan Zibel — AP Real Estate Writer
WASHINGTON (AP) — The homebuilding industry's nosedive won't let up. Sales of new homes plunged to the slowest pace on record last month and builders posted their worst annual sales results in more than two decades.
Even with mortgage rates hovering around 5 percent and prices sinking dramatically, buyers have yet to return to the market as the recession deepens.
New home sales fell 14.7 percent in December to a seasonally adjusted annual rate of 331,000, from a downwardly revised November figure of 388,000, the Commerce Department said Thursday. The results were far worse than analysts expected.
Prices plunged by more than 9 percent from a year ago, and builders are hoarding cash in hopes of making it out of the real estate downturn.
"They're just holding on, hoping that the end is close enough that they can survive," said David Crowe, chief economist for the National Association of Home Builders. "A lot of them are cutting prices to the point where they're just covering their costs."
Builders are lobbying Congress for expanded aid for homebuyers in economic recovery legislation. President Barack Obama's $819 billion stimulus plan, which passed the House this week and is now in the Senate, includes a $7,500 tax credit for first-time homebuyers who act in the first half of the year. The builders, however, are pushing a larger credit that would last for all of 2009.
The industry has been forced to slash production during a prolonged and severe housing slump that has seen sales and prices plummet. December's sales activity was depressed by the worst financial crisis in seven decades, which has made it harder for potential buyers to get mortgage loans.
Homebuilders have lowered prices, cut back on new construction and stepped up incentives to spur demand.
Luxury builder Toll Brothers Inc. this month tried to spur sales by offering 30-year fixed rate home loans at a below-market rate of 3.99 percent. A builder in Arizona, trying to unload two multimillion-dollar custom homes, recently offered to throw in a free $200,000 Bentley Continental GT automobile.
But buyers have yet to turn up. December's sales pace was the lowest on records dating back to 1963. For 2008, builders sold 482,000 homes, down 38 percent from 2007. It was the weakest year since 1982, when 412,000 homes were sold.
"This is an awful report ... builders just can't cut back fast enough, so prices remain under downward pressure," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note.
Prices also are sinking. The median price of a new home sold in December was $206,500, a drop of 9.3 percent from a year ago. The median is the point where half the homes sold for more and half for less.
About the only positive news in the government report was a drop in the inventory of unsold new homes, which fell 10 percent from November to a seasonally adjusted 357,000. Still, sales remain so sluggish that it would take a record 12.9 months at the current sales pace to exhaust the stock as houses are dumped onto a market already glutted by a tide of foreclosures.
"The inventory of unsold new homes is still too high," wrote Joshua Shapiro, chief U.S. economist at MFR Inc. "Prices need to fall further to stimulate sufficient demand to begin to balance the market."
The sales weakness in December reflected a 28 percent drop in the Northeast and a 20 percent drop in the West. The South and Midwest posted smaller declines of 12 percent and almost 6 percent, respectively.
Earlier this month, a key gauge of homebuilders' confidence sank to a new record low, as the deepening U.S. recession and rising unemployment erode chances for a housing turnaround.
Sales of existing homes, however, posted an unexpected increase in December, as consumers snapped up bargain-basement foreclosures in California and Florida. Sales of existing homes rose 6.5 percent from November's pace, the National Association of Realtors said Monday.
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By Alan Zibel — AP Real Estate Writer