New homes sold at the second-slowest pace on record in August, signaling that the housing market will remain a drag on the economy.
Last month's new home sales were unchanged from a month earlier at a seasonally adjusted annual sales pace of 288,000, the Commerce Department said Friday. Sales were down by 29 percent from the same month a year earlier.
Normally the building industry powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
But housing has been at the center of this downturn and it shows no signs of recovering quickly.
The only time new home sales were slower was in May, when the sales pace was 282,000. That's the worst pace on records dating back to 1963. July's results had been the worst on record, but were adjusted upward.
"This is a pitiful performance but it should not come as a surprise to see sales so weak," Ian Shepherdson, chief U.S. economist for High Frequency Economics. "We don't expect to see any meaningful pickup in sales until next year."
High unemployment, tight credit and uncertainty about home prices have kept people from buying new and previously occupied homes. Government tax credits boosted the market earlier in the year, but those expired in April.
Sales of previously occupied homes rose 7.6 percent in August from July to a seasonally adjusted annual rate of 4.13 million, the National Association of Realtors said Thursday. That was the second-worst month for that category in more than a decade. July was the worst month in 15 years.
The median sales price for a new home in August was $204,700. That was down 1.2 percent from a year earlier and the lowest since December 2003.
Gains in Western and Northeastern states canceled out losses in the Midwest and South. Sales grew by more than 54 percent in the West and by 17 percent in the Northeast. They fell 26 percent in the Midwest and 11 percent in the South.
Builders are competing with millions of foreclosures and other distressed properties that show no signs of abating. They are unlikely to ramp up construction until those are cleared away and demand for new homes picks up.
The number of unsold new homes on the market fell to 206,000, the lowest since August 1968. At the current sales pace, it would take about 8.6 months to exhaust that supply.
The industry is suffering the repercussions of a massive building boom, in which many homes were sold to speculators. They then resold the homes, often to borrowers who took out risky loans and then defaulted. Those unsustainable boom times aren't coming back.
Economists at Bank of America-Merrill Lynch predict that spending on building and remodeling homes will decline in the July-September quarter and actually subtract 0.7 percentage points from overall economic activity.
Home construction is up 25 percent from the bottom in April 2009, it is still 74 percent below the peak in January 2006.