Sales of new homes up in October, but prices fall

WASHINGTON – Americans bought slightly more new homes in October, a hopeful sign for the troubled housing market. But the median sales price fell to its lowest level of the year, and the overall sales pace is trailing last year's — the worst in half a century.

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  Gene J. Puskar, AP
  New home construction in Canonsburg, Pa.

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Gene J. Puskar, AP

New home construction in Canonsburg, Pa.

The report suggests housing continues to drag on theU.S. economy and is a long way from recovering.

New-home sales increased 1.3% last month to a seasonally adjusted annual rate of 307,000, theCommerce Department said Monday. That's less than half the 700,000 that economists say must be sold to sustain a healthy housing market.

Last year's 323,000 new homes sold were the fewest since the government began keeping records in 1963. This year isn't faring much better.

While new homes sales represent a fraction 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.

For many Americans, buying a home is too big a risk more than four years after the housing bubble burst.

Home prices have tumbled, the job market remains weak and unemployment has been stuck near 9% for more two years. Some people who want to buy can't qualify for a loan or make the higher down payments that banks are demanding.

Sales are slumping even though mortgage rates are hovering above historic lows.

Builders are struggling to compete with foreclosures and short sales — when lenders accept less for a house than the mortgage on the home — which are at an average discount of 20%. That has made many re-sales a bargain compared with new homes.

Yet sales of previously owned homes are also dismal. They rose slightly last month to a seasonally adjusted annual rate of 4.97 million units, the National Association of Realtorssaid last week. That's below the 6 million that economists say is consistent with sales in a healthy market and barely ahead of last year's totals, which were the fewest since 1997.