New home sales in U.S. plunge in October

American new home sales in October fell to their lowest level in 17 years, according to data released by the U.S. government Wednesday.

The U.S. Census Bureau said the sale of new houses tumbled 5.3 per cent in October to an annualized rate of 433,000. That compared to 457,000 one month earlier and was the weakest showing since 1991, the federal agency said.

In addition, the 24,000 reduction was a far worse result than economists had expected for the month.

A dramatically weakening economy combined with plunging consumer confidence have American buyers putting the possible purchase of a new or existing home on hold.

"Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions," said Lawrence Yun, an economist with the Washington-based National Association of Realtors, when that group released existing home sales figures earlier in the week.

The number of existing homes in the United States that were sold in October fell 3.1 per cent compared to September and was 1.6 per cent below the annualized rate in October 2007.

Still, some analysts said Washington's recent moves to loosen up seized mortgage markets could bear fruit by the end of the year.

"November sales probably won't be pretty, but December could see a bounce as the Fed's announcement that it will buy $600 billion US in (mortgage-backed securities) caused mortgage rates to tumble," said Benjamin Reitzes, an economist with BMO Economics.

Dark skies get darker

New home purchases tend to gauge potential construction activity since builders will use an upward trend in sales as a reason to pour foundations. Existing home activity is more of an indication of consumer interest in real estate.

Either statistic indicated a sector in trouble.

The Census Bureau noted that, for the January-to-October period, new homes sales were down 40 per cent compared to the same 10 months in 2007.

Assuming a 10 per cent increase in activity during November and December, U.S. new home sales would top out at 482,000 for 2008, less than half of the 1.1 million new homes sold in 2006.

Inventories rise, prices don't

Inventories also show an industry with more downside than upside in the coming months.

The Census Bureau figured that there is a backlog of more than 11 months of new homes ready for sale while the Realtors' Association believes there is a 10-month inventory in the existing home market.

Anything above a six-month backlog is considered to be a housing market faced with waning buyer interest.

House prices are also moving in the wrong direction for potential sellers.

The average price of a new home was $272,300 in October, down four per cent from September's valuation, and down 14 per cent compared to the most recent peak of $316,800 in November 2007.