U.S. new home sales plunge

Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The Commerce Department reported that sales of new single-family homes dropped by 6.6 per cent last month to a seasonally adjusted annual rate of 834,000 units. The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 per cent in January. Sales are now 22.3% below the level of a year ago.

The median price of a new home sold last month dropped to $237,900 (U.S.), down by 2.2 per cent from a year ago. It was the biggest year-over-year price drop since a 6.5 per cent fall in April. The median price is the point where half the homes sold for more and half for less.

The big drop in new home sales followed a report Wednesday showing that existing home sales dropped by 3.8 per cent in June to a five-year low. The weakness reflects spreading troubles in the mortgage market as more borrowers are defaulting on their loans, dumping those homes back on an already glutted market. In addition, banks and other lenders are tightening standards, making it harder for prospective buyers to qualify for loans.

Economists believe the weakness in housing could linger through the rest of this year until a huge overhang of unsold homes is worked down. For June, the inventory of unsold new homes was unchanged at 537,000 units.