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Home Sales Down, Prices Up

Inventories of new homes continue to decline, suggesting builders are being more cautious.

Updated from 10:34 a.m. EST

Sales of new homes fell 3.2% from September to October, worse than analysts' estimates, but prices rose and inventories declined for the third straight month.

Sales of new one-family houses were at a seasonally adjusted annual rate of 1.00 million units, down from 1.04 million in September, the Commerce Department said Wednesday. The rate tumbled 25.4% from the same time a year earlier.

Economists expected a rate of 1.05 million sales in October, according to



The median sales price of new houses sold in October was $248,500, up from $243,900 a year earlier and $218,200 in September.

"After we had seen a couple months of sales increases, there was some talk that we had reached the bottom in the new-home market. And now we've seen that sales have come back down around the same level we were in August," says Phillip Neuhart, a Wachovia economic analyst.

An estimated 558,000 homes were available for sale at the end of October, which represents a supply of seven months at the current sales rate. The total level of housing inventories has now declined each month since hitting a peak of 573,000 in July.

The inventory drop suggests homebuilders are becoming more judicious about building new homes. However, the inventory of existing homes for sale rose 1.9% in October and

hit a record, the National Association of Realtors said Tuesday.

This shows that the total level of homes for sale around the country remains an issue for homebuilders.

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Although the median price rose for single-family homes, most homebuilders continue to say that they're aggressively cutting prices to move inventory. The price increase in October could simply be due to product mix or heavier sales in more expensive locations. In fact, sales rose 3.2% in the West from September to October.

"Maybe we reached a level of stabilization, but it's still more of a trough," Neuhart says. "It's showing that the new-home market is not going to bounce back quickly."

Homebuilder stocks were higher Wednesday.

KB Home

(KBH) - Get KB Home Report

recently was adding 91 cents, or 1.9% to $48.13 and

Pulte Homes

(PHM) - Get PulteGroup, Inc. Report

was up 45 cents, or 1.5% to $31.23.

D.R. Horton

(DHI) - Get D.R. Horton, Inc. Report

rose 40 cents, or 1.6%, to $25.20.