New-home sales dive 26% in ’07

Sales of new single-family homes plummeted a record 26% last year and builders slashed prices by the most since 1970 in a struggle to cope with the housing bust, a U.S. government report showed Monday.

The Commerce Department 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.

Sales in December fell 4.7% to an annual rate of 604,000 -- the slowest pace since 1995 -- from a downwardly revised rate of 634,000 in November, the report said.

“Home builders 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, N.Y. “There is no sign of a bottom in any of these data.”

The weak report weighed on U.S. stock prices in early trading, but prices later rose on expectations the Federal Reserve would lower interest rates again to shore up the economy.

The Dow Jones industrial average closed up 1.45%.

The U.S. central bank begins a two-day monetary policy meeting today, 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 of further U.S. rate cuts.

Builders have shelved developments and dumped land holdings as the bursting of the 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% from 1.3 million at the peak of the market in 2005.

The median new-home sales price fell 10.9% from November to $219,200 and 10.4% below the year-earlier level.

Despite those price cuts, the glut of houses available continued to swell and put pressure on builders to further 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 at Swiss Re in New York.

There were 495,000 homes for sale at the end of December, down 1.4% from November but still a 9.6-month inventory at the current sales pace, up from a 9.4-month inventory reported for November.