New home sales tumbled in October while the median home price dropped to the lowest point in seven years.
Sales of new single-family homes declined 8.1 percent to a seasonally adjusted annual rate of 283,000 units in October, the Commerce Department reported Wednesday.
It was the fourth time the sales rate has dropped in the past six months. New home sales are just 2.9 percent above August’s pace of 275,000 units – the lowest level on records dating back to 1963.
Many economists believe it could take three years for the industry to get back to a healthy annual rate of sales of around 600,000 homes.
The median price of a home sold in October dipped to $194,900, the lowest level since October 2003.
Some analysts downplayed the drop in sales, saying that when the market is this low it is vulnerable to high volatility.
“Sales are bumping along the bottom, showing no real inclination to start recovering or, thankfully, to fall any further,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
High unemployment, tighter bank lending standards and uncertainty about home prices have kept people from buying homes. Government tax credits had propelled the market earlier this year but those expired in April.
Weak housing sales mean fewer jobs in the construction industry, a sector that normally powers economic recoveries. The government reported Tuesday that the overall economy grew at an annual rate of 2.5 percent in the July-September quarter even though the housing sector, as measured by the gross domestic product, was plunging at a rate of nearly 29 percent.
On average, each new home built creates the equivalent of three jobs for a year and generates about $90,000 in taxes, according to data compiled by the National Association of Home Builders.
The decline in new home sales followed a report Tuesday that sales of previously occupied homes fell 2.2 percent in October, to a seasonally adjusted annual rate of 4.43 million units. That left the sales pace for previously occupied homes 38.9 percent below a peak of 7.25 million units set in September 2005.
Buyers are worried that home prices could fall further. Some can’t sell their current home to upgrade to a larger home, either because they have lost equity or they can’t find prospective buyers who can qualify for loans under tighter bank lending standards. The market is declining even with mortgage rates near their lowest levels in decades.
The average rate for 30-year fixed loans rose to 4.40 percent from 4.39 percent last week, mortgage buyer Freddie Mac said Wednesday. The 15-year loan also increased, to 3.77 percent from 3.76 percent.
The October setback in new homes represented weakness in all parts of the country except the South, where sales posted a 3.1 percent rise. New home sales fell 23.9 percent in the West, 20.4 percent in the Midwest and 12.1 percent in the Northeast.