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New-home sales fall, 2011 could be worst year yet

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WASHINGTON (AP) — The number of people who bought new homes fell

for the third straight month in July, putting sales on track to

finish this year as the worst on records dating back half a

century.

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Sales of new homes fell nearly 1 percent in July to a seasonally

adjusted annual rate of 298,000, the Commerce Department said

Tuesday. That’s less than half the 700,000 that economists say

represent a healthy market.

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Housing remains the weakest part of the economy. Last year was the

worst for new-home sales on records that go back nearly 50

years.

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While new homes represent less than one-fifth of the housing

market, they have an outsize impact on the economy. Each home built

creates an average of three jobs and $90,000 in taxes, according to

the National Association of Home Builders.

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Analysts said the report was further proof that the housing market

is stuck in the doldrums.

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“How much longer can we flat-line on housing?” said M. Cary Leahey,

senior economist at Decision Economics.

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All types of home sales remain weak. Sales of previously occupied

homes fell in July for the third time in four months, and they are

trailing last year’s 4.91 million sales, the fewest since 1997. In

a healthy economy, people buy roughly 6 million existing homes

annually.

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High unemployment, larger required down payments and tougher

lending standards are preventing many people from buying

homes.

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Plunging stocks and a growing fear that the U.S. could tip back

into another recession are also keeping people from entering the

troubled housing market.

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A report last week on sales of previously owned homes showed that

more sales than usual fell apart at the last minute, a sign that

many buyers may be nervous about the economy. At least 16 percent

of deals were canceled head of closings last month – four times the

rate in May.

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Foreclosures and short sales are forcing down prices. A short sale

is when a lender accepts less than what is owed on the

mortgage.

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Those homes are selling at an average discount of 20 percent, and

they lower neighboring values. That’s made many re-sales a bargain

compared with new homes, creating an average 30 percent disparity

in prices.

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Sales of new homes doubled in the Northeast in July, but the region

has the weakest sales in the country by far. In the South and West,

sales fell 7.4 and 5.9 percent, respectively. Sales rose 2.4

percent in the Midwest.

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The median price of a new home fell more than 6 percent to $222,000

nationally. But it is still roughly 27.5 percent higher than the

median price of a re-sold home, which was $174,000 in

July.

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The number of new homes for sale at the end of the month dropped to

a record low of 165,000, down 0.6 percent from June. At the July

sales pace, it would take 6.6 months to exhaust the current supply.

Economists consider a 6-month supply a normal level, indicating

that builders are heavily cutting back construction.

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Sales of new homes have fallen 18 percent in the two years since

the Great Recession officially ended.

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A telling sign of how bad things have gotten for the housing

industry: Prices have dropped more since the recession started, on

a percentage basis, than during the Great Depression of the

1930s.

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And it took 19 years for prices to fully recover after the

Depression.

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