New home sales declined 8.1% in October to a rate of 275,000 homes sold per year, according to statistics [.pdf] from the Census Bureau. This rate is the third lowest since record keeping of new home sales began in 1963. Though the two lowest rates have also been recorded this year – August had a rate of 274,000 and May had a rate of 282,000. The September rate of 275,000 is only a fifth of the housing peak in July 2005, when the rate was 1,389,000 new homes sold per year. Also, the median sales price of new homes dropped to $194,900 in October. This is the lowest median price since October 2003, when the median sales price of new homes was $194,100. Clearly, these statistics do not indicate a recovering housing market, but instead indicate an increasingly fragile housing market.
A major explanation for the housing slump in 2010 is attributable to the expiration of the first-time home buyer tax credit in April. This credit allowed first time buyers to receive 10% of the home value or up to $8,000. In order to qualify for the credit, homes had to be under contract by April 30th, according to the IRS. Unsurprisingly, home sales were higher in April [.pdf] than any other month in 2010 with a rate of 414,000 homes sold per year. Following April, the three lowest months of new home sales have been recorded (May, August, & September). Moreover, the homes that were under contract by April 30th must finalize the sell before September 30th in order to receive the tax credit. As a result, the tax incentive lost effect at the end of September, which means coming months will likely bring forth even weaker statistics for the housing market.
Lastly, the 30-year fixed mortgage rate increased for the fourth consecutive week and is currently 4.4%. With the rise of mortgage rates, as well as the evaporated tax credit, the housing market is becoming less of a “buyer’s market.”
UPDATE (Jan. 1): This article was updated to show the revisions of home sales in October.