New Home Sales Hit All-Time Lows: 4 Things You Should Know

A new report shows the housing market's woes continue.

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Although exiting home sales bounced back recently--thanks to plummeting prices--a government report issued Thursday showed that December sales of new homes plummeted nearly 15 percent from the previous month to all-time lows. (That's 45 percent below year-earlier levels.) "This is horrible," Ian Shepherdson, chief US economist for High Frequency Economics, said in a report.

Here are four things you should know about the latest new home sales report:

1. How bad was December? Well, according to Mike Larson of Weiss Research, it was the single worst month on record. "We have NEVER sold this few homes in any month since the Census Bureau started tracking in 1963," Larson said in a report. "Not even in the early 1980s, when mortgage rates were in the 18 [percent] range."

[See Housing Rebounds--or Does it? 4 Things to Know.]

2. Sliver Lining: If there is anything positive in the report, it's the reduction in homes offered for sale, which dropped to 357,000 in December, down sharply from a peak of 572,000 in 2006, said David Resler, chief economist at Nomura Securities International. But even the silver lining comes with bad news. "Despite the improvement in the level of new home inventory, the months’ supply of new homes rose to 12.9 from 12.5 on the sharp fall in sales volume," Resler said in a report.

3. Muted impact of low mortgage rates: It's important to note that the sharp drop in sales occurred as mortgage rates plummeted to compelling levels. Larson argues that the trend underscores the limits of cheap financing in the face of a nasty recession. "Surging unemployment is a much more important factor when it comes to the decision to buy a home," Larson said. "If you're worried you're going to lose your job, you don't care if 30-year mortgages are going for 3 [percent] or 8 [percent.]"

[Check out Low Mortgage Rates: 7 Things You Need to Know to Refinance.]

4. Prices headed lower: The report showed that median new home prices fell 6 percent to $206,500 from November to their cheapest levels in more than five years, Larson said. Still, prices are poised to get lower from here, says Richard Moody, chief economist at Mission Residential. "In a time when a recession, steadily eroding labor market conditions, flagging consumer confidence, and tougher mortgage lending standards are acting as a considerable drag on home sales, homebuilders face the added stress of competing against large, and growing, numbers of low-priced foreclosures," Moody said in a report. "To the extent that low mortgage rates and sales incentives, such as buyers’ tax credits, do facilitate sales, those sales are increasingly tilted towards existing homes. Under these circumstances, new home prices will remain under steady downward pressure."

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