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Home Prices Drop Sharply

Nicholas Yulico

September new-home sales rose 5.3% from August, while the median price fell sharply, helping to drive down the overall level of inventory in the market.

Sales of new one-family houses in September were at a seasonally adjusted annual rate of 1.075 million, the Department of Commerce said.

This is 5.3% above the revised August rate of 1.021 million, but 14.2% below the year-ago level. Economists expected a sales rate of 1.05 million, according to Reuters estimates.

The median sales price of new houses sold in September 2006 was $217,100, down from $239,300 in August and $240,000 a year ago.

The inventory of homes for sale dropped to 6.4 months of supply at the current sales rate, compared with 6.8 months in August. The recent inventory high was set in July at 7.2 months.

The price decline "is expected in an environment where builders are discounting their homes, and mortgages rate are higher than they have been in the last few years," says Phillip Neuhart, a Wachovia economic analyst.

The sales number shows that the downward trend that had accelerated this summer is now beginning to flatten, Neuhart says. Still, he doesn't expect a huge recovery in the market anytime soon.

On Wednesday, the National Association of Realtors reported that sales of existing homes fell 1.9% in September from August, while prices dropped about 2.2% from the prior year. The real estate group said, however, that sales may have reached a trough.

Homebuilder stocks were mixed Thursday. Toll Brothers (TOL Quote - Cramer on TOL - Stock Picks) was down 19 cents, or 0.6%, to $30.25, D.R. Horton (DHI Quote - Cramer on DHI - Stock Picks) was up 33 cents, or 1.4%, to $24.30; and KB Home (KBH Quote - Cramer on KBH - Stock Picks) climbed 3 cents to $45.64.