New home sales hit 9-month low

WASHINGTON (AP) - New home sales unexpectedly fell 7.6 percent last month, capping the industry's weakest year on record.

The Commerce Department said December sales fell to a seasonally adjusted annual rate of 342,000 from an upwardly revised November pace of 370,000. Economists surveyed by Thomson Reuters had forecast a pace of 370,000 for December.

The results were the weakest since March and indicated demand remains sluggish despite newly expanded tax incentives to spur sales. The report is likely to fuel concern that the housing market turnaround will falter when government support ends this spring.

Housing remains one of the weakest links for the economic recovery, and is weighing on the minds of Federal Reserve officials who will issue a policy statement Tuesday afternoon at the end of a two-day meeting.

No major changes in interest rates are expected. The big question is whether Fed will revise its strategy to keep mortgage rates low. The Fed has been buying $1.25 trillion in mortgage-backed securities, but has said it will phase out the program by the end of March.

Only 374,000 homes were sold last year, down 23 percent from a year earlier and the weakest year on records dating back to 1963. December's sales were nearly 9 percent below the same month last year. This year, the National Association of Homebuilders is forecasting more than 500,000 sales.

Even if that happens, "it hardly makes you ecstatic," said Bernard Markstein, senior economist at the trade group, noting that the industry clocked more than 1 million sales a year from 2003 through 2006

Home sales have had a rocky recovery from their four-year slide. December's sales pace for new homes was up 4 percent from the bottom in January 2009, but down 75 percent from the peak in July 2005.

The median sales price of $221,300 in December was down nearly 4 percent from $229,600 a year earlier, but up about 5 percent from November's median of $210,300.

New home sales varied widely across the country. Sales of new homes plummeted by 41 percent in the Midwest and fell by 7 percent in the south. But they skyrocketed 43 percent in the Northeast and rose 5 percent in the West.

"You have some builders that are still struggling while others are doing well," said Brad Hunter, chief economist with Brad Hunter, chief economist with Metrostudy, a real estate research and consulting firm.

Any housing recovery this year is likely to be slow and labored. Experts forecast sales of new and previously occupied homes to weaken after tax credits for homebuyers expire in April.

So far, the housing recovery has been fueled mainly by hundreds of billions in federal spending that has pushed down mortgage rates and propped up demand. Congress decided last year to extend a tax credit of up to $8,000 for first-time buyers until the end of April. Homeowners who have lived in their current properties for at least five years can claim a tax credit of up to $6,500 if they relocate.

There were 231,000 new homes for sale at the end of December, down about 2 percent from November and the lowest inventory level since April 1971. But at the current lackluster sales pace, that still represents 8 months of supply — above a healthy level of around 6 or 7 months.

John Freer, president of Riverworks Inc., a custom home builder in Missoula, Mont. who builds environmentally sustainable homes, said traffic and sales have been picking up. Along with the tax credit, he said, "I think people are a little bit more optimistic than they were last year."

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AP Real Estate Writer Alex Veiga contributed to this report.