Surprise drop in new home sales

Sales of newly constructed homes fell 3.6% in September, after five months of gains, according to a government report.

Sales of newly built homes fell unexpectedly in September after rising for five straight months, according to government figures released Wednesday.

The Commerce Department said new home sales fell 3.6% to a seasonally-adjusted annual rate of 402,000 last month, from a downwardly revised rate of 417,000 in August. It was the first time new home sales declined since March.

Economists surveyed by Briefing.com had expected September new home sales to rise to a rate of 440,000 units.

"We're attributing most of the decline to the potential expiration of the new home-buyer tax credit," said Adam York, an economist at Wells Fargo.

In addition to relatively low prices and attractive mortgage rates, the housing market has been supported in recent months by a temporary government tax credit for first-time homebuyers.

The credit, which can be worth up to $8,000 for eligible buyers, is set to expire at the end of November. Congress is expected to extend the credit, but the terms are still being debated.

Wednesday's report showed the median sales price rose to $204,800 in September from $195,200 the month before. The average sales price was $282,600. $256,800

The price increase echoed an industry report released Tuesday that showed home prices in 20 major markets rose for the fourth month in a row during August.

Meanwhile, the estimated number of new homes for sale at the end of last month fell 251,000 units on a seasonally adjusted basis. That's down from 262,000 unsold homes last month and was the lowest level since November 1982.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the drop in housing inventory means the market is moving towards a better balance of supply and demand. "But the tax credit story is the key element right now," he added.

He said that the credit's looming expiration will probably mean that home sales will fall again in October and, depending upon where the legislation stands, in November as well.

At the current sales pace, it would take 7.5 months to sell through existing inventory, according to the report. That's up from the previous month, when the there was about 7.3 months of inventory on the market.

(CNNMoney.com)