New Home Sales Off 6%; Worst in 6 Months

Sales of new homes slumped 6% in September, the ninth decline in the last 12 months and the worst drop in half a year, the government said today.

New home sales totaled a seasonally adjusted annual rate of 503,000 last month, the Commerce Department and the Housing and Urban Development Department said in a joint release.

Sales fell 1.8% in August and 0.9% in July. Both figures were revised from earlier estimates of a 1.4% decline in August and a 0.2% drop a month before that.

During the first nine months of the year, sales totaled 435,000 homes, down 15% from the same period of 1989.

Economists viewed today’s report as more confirmation of a weak housing market, attributed to consumers’ fear of a recession, high home prices and high interest rates.

While the weakness was bad news for builders, it was good news for home buyers. The median price of a new home dropped to $115,000 in September. That was down from $118,400 in August and $120,000 a year earlier.

In response to the enactment of the budget deficit-cutting package, the Federal Reserve on Monday nudged short-term interest rates lower. The rate charged among banks for overnight loans fell to 7.75% from 8%. However, it was unclear whether banks will pass the benefits of the cut through to consumers, stimulating home sales with lower mortgage rates.

At the September sales pace, it will take 8.4 months to exhaust the inventory of unsold new homes, up sharply from a backlog of 7.9 months in August.

By region, the sales decline was worst in the Northeast, where sales dropped 15.6% in September after falling 9.9% in August. Sales shrank 7.9% in the South, 2.2% in the Midwest and 0.7% in the West.