New Home Sales Down 8.1% in October

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October was a rotten month for the U.S. housing market. Today, we learn that new home sales fell by 8.1% to an annualized rate of just 283,000, according to the Census Bureau. That's well below the increase to 310,000 that economists estimated. This follows news yesterday that existing home sales also dropped, by 2.2%. Fewer new homes sold shows even more clearly that home buying demand is failing to recover.

Here's how the chart looks:

new home sales 2010-10.png

You can see that new home sales rebounded slightly in September after hitting an all-time low in August. But in October, they dropped back down to their July level. There's no upward trend here. Instead, sales appear to be stabilizing at an annualized rate below 300,000.

The drop in existing home sales was pretty easy to explain away as likely caused in large part by the foreclosure and mortgage documentation mess. With new home sales, that argument isn't as strong. While potential buyers in general might be wary about banks practices and procedures surrounding mortgages, with existing home sales foreclosed property sales are relevant.

With new home sales struggling, however, it's more likely that simply weak home buying demand is to blame -- at least in the market for new houses. That's particularly bad news for construction jobs, which could use a boost by more homebuilding. But fewer new home sales also means that more buying demand will extinguish existing home inventory more quickly, which should help the housing market hit bottom sooner so it can finally rebound in a meaningful way.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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