New Home Sales, Prices Fall in December

Fewer people bought new homes in December, making 2011 the worst sales year on record.

The Commerce Department said Thursday new-home sales fell last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 homes were sold last year. That's less than the 323,000 sold in 2010, making 2011 the worst year on records dating back to 1963.

The median sales prices for new homes dropped in December, as builders continued to slash prices. It fell 2.5 percent to $210,300.

However, a gauge of future U.S. economic activity rose to a five-month high in December as labor market conditions improved, the Conference Board said on Thursday, pointing to continued momentum in the recovery.

The group's Leading Economic Index increased 0.4 percent to 94.3, the highest level since July, after rising by a revised 0.2 percent in November.

Overall, sales of new homes rose in the final quarter of 2011. That occurred as other signs suggest the depressed housing market is starting to slowly turn around.

Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. Homebuilders are slightly more hopeful because more people are saying they might consider buying this year. And home construction picked up in the final quarter of last year.

And hiring has improved, which is critical to a housing rebound. Fewer people are seeking unemployment benefits than at any time in nearly four years, which is evidence of far fewer layoffs. The unemployment rate fell in December to its lowest level in nearly three years.

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it's been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage

Builders ended 2011 with a third straight year of dismal home construction and the worst on record for single-family home building. But in a hopeful sign, single-family home construction, which makes up 70 percent of the market, increased in each of the last three months.

Reuters contributed to this report.