WASHINGTON (Reuters) - Sales of new single-family homes plummeted a record 26 percent in 2007 and builders slashed prices by the most since 1970 in a struggle to cope with a housing bust, a government report showed on Monday.
Sales in December fell 4.7 percent to an annual rate of 604,000 — the slowest pace since 1995 — from a downwardly revised rate of 634,000 in November, the Commerce Department said.
The report offered little hope for a turnaround any time soon as a record one-month drop in the median home price for December failed to stoke demand and the number of months needed to clear the inventory of unsold homes rose.
“Homebuilders are cutting production but with sales still collapsing they have to run to stand still,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
“We think the downside for activity and prices remains considerable ... There is no sign of a bottom in any of these data,” he added.
The weak data weighed on U.S. stock prices in early trade, but prices later rose on expectations the Federal Reserve would lower interest rates aggressively to shore up the economy.
The Dow Jones industrial average closed up 1.45 percent.
The U.S. central bank begins a two-day monetary policy meeting on Tuesday, and many financial market participants expect it will follow-up last week’s emergency rate cut in target benchmark short-term interest rates with another half-point reduction.
Prices of U.S. government debt fell as investors shifted into stocks, while the dollar slipped against most major currencies amid expectations for further U.S. rate cuts.
Builders have shelved developments and dumped land holdings as the bursting of a U.S. housing bubble two years ago has forced many to scramble to limit losses.
The figure of 774,000 homes sold last year was the lowest since 757,000 were sold in 1996. Sales have tumbled 39.6 percent from 1.283 million at the peak of the market in 2005.
The median new home sales price fell 10.9 percent from November to $219,200, 10.4 percent below the year-ago level.
However, despite those price cuts the glut of houses available continued to swell and put pressure on builders to slow construction below its current crawl, economists said.
The report was much weaker than expected on Wall Street. Economists polled by Reuters were expecting December sales to fall to an annual rate of 640,000 from November’s previously reported rate of 647,000.
“It’s a pretty big drop and it clearly shows the housing market continues to deteriorate,” said Kurt Karl, chief U.S. economist with Swiss Re in New York. “Supply is building up and there’s no indication demand will catch up any time soon.”
There were 495,000 homes for sale at the end of the December, down 1.4 percent from November.
However, with sales falling faster than inventory, it would take 9.6 months to clear those unsold new homes at the current sales pace, up from the 9.4 months reported for November.