Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.
The Commerce Department reported today that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.
The government reported that the median price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.
The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.
The housing weakness has dragged down overall growth and sent shockwaves through the rest of the economy including the financial sector, which is dealing with billions of dollars in losses in subprime mortgages. Some analysts are worried that the fallout could become so severe it will drag the entire country into a recession.
The Federal Reserve unexpectedly cut a key interest rate by the largest amount in more than two decades last week following an emergency meeting, and it is expected the Fed will cut rates further at a regular rate-setting meeting this week.
The 26.4 percent drop in sales for 2007 represented weakness in every part of the country except the Northeast, where sales posted a small 1.6 percent advance. Sales recorded declines of 32.2 percent in the West, 26.7 percent in the Midwest and 26.3 percent in the South.
The year ended on a weak note with new home sales in December falling by 4.7 percent after an even sharper 12.6 percent decline in November.
While the median home price for the entire year was up slightly, the median price of homes sold in December was $219,200. That was down 10.4 percent from a year ago, the biggest 12-month price drop in 37 years.
Analysts said that prices will likely keep falling in early 2008 as builders continue to struggle to work down the glut of homes.
It would take 9.6 months to eliminate the backlog of unsold new homes at the December sales pace, the longest stretch of time since the month's supply stood at 10.3 months in October 1981.
The severe credit crunch that hit in August has made the troubles in housing worse because it has prompted banks and other lenders to tighten their standards, making it harder for prospective buyers to qualify for loans. Also adding to the problems facing prospective sellers is the rising tide of mortgage defaults, which are dumping more homes on an already glutted market.
The big fall in new home sales followed earlier reports that sales of existing homes fell by 13 percent in 2007, the biggest drop since 1982, while construction of new homes dropped by 24.8 percent last year, the biggest fall since a record decline in 1980.
New home sales dropped in 2007 by a record amount