Last month's results were the weakest since March and were only 4 percent above the bottom last January. The data showed the housing recovery remains limp despite newly expanded tax incentives to spur sales. Many in the industry, however, expect sales to pick up as the April 30 deadline for the tax credit nears.
Some builders are nervous. "If we don't see better data in March and April, we're going to have a big problem," said John Wieland, CEO of Atlanta-based John Wieland Homes and Neighborhoods.
Housing remains one of the weakest links in the economic recovery. On Wednesday afternoon, Federal Reserve policymakers wrapped up a two-day meeting but failed to mention housing. That was telling because it had asserted in recent months that the housing market was improving.
Now, the housing industry, which has been propped up by government support, faces another challenge. A $1.25 trillion Fed program that has held down mortgage rates is scheduled to end by March 31. That, along with the expiration of tax credits for homebuyers in April, could further cripple home sales at the start of the busiest time of the year.
Nationwide, new home sales for December fell 7.6 percent to a seasonally adjusted annual rate of 342,000 from an upwardly revised November pace of 370,000, the Commerce Department said Wednesday. Economists surveyed by Thomson Reuters had forecast a pace of 370,000 for December.
"Another wheezing home sales report," wrote JPMorgan Chase economist Michael Feroli.
Tom Brown, co-owner of Summerville, S.C.-based Crown Home Builders, was not surprised that last month was so poor for the industry. Buyers are having trouble meeting tough criteria for mortgage loans, he said. And though builders are cutting prices, the shaky economy and weak job market are keeping home shoppers away.
"People are holding on to what they have," he said.
Mortgage rates rose slightly after the Federal Reserve's statement. but remain level with the past two weeks. The national average rate on 30-year loan was 5.12 percent on Thursday, up from 5.04 percent on Tuesday, roughly the same as it had been over the past 10 days, according to data publisher HSH Associates.
"There's a lot of anxiety, but nothing really right now that would impact the consumer," said Jim Sahnger, a mortgage broker with Palm Beach Financial Network in Jupiter, Fla.
Only 374,000 new homes were sold last year, down 23 percent from a year earlier and the weakest year on records dating back to 1963. December's sales were nearly 9 percent below the same month last year. This year, the National Association of Home Builders is forecasting more than 500,000 sales.
Even if that happens, "it hardly makes you ecstatic," said Bernard Markstein, senior economist at the trade group, noting that the industry clocked more than 1 million sales a year from 2003 through 2006
Home sales have had a rocky recovery from their four-year slide. December's sales pace for new homes was up 4 percent from the bottom in January 2009, but down 75 percent from the peak in July 2005.
The median sales price of $221,300 in December was down nearly 4 percent from $229,600 a year earlier, but up about 5 percent from November's median of $210,300.
New home sales varied widely across the country. Sales of new homes plummeted by 41 percent in the Midwest and fell by 7 percent in the south. But they skyrocketed 43 percent in the Northeast and rose 5 percent in the West.
"You have some builders that are still struggling while others are doing well," said Brad Hunter, chief economist with Metrostudy, a real estate research and consulting firm.
And any housing recovery this year is likely to be slow and labored.
So far, the housing recovery has been fueled mainly by hundreds of billions in federal spending that has pushed down mortgage rates and propped up demand. Congress decided last year to extend a tax credit of up to $8,000 for first-time buyers until the end of April. Homeowners who have lived in their current properties for at least five years can claim a tax credit of up to $6,500 if they move.
Executives at Meritage Homes Corp., at Scottsdale, Ariz.-based builder, said the tax credit extension led to a slowdown in sales in the final three months of last year compared with the summer.
Still, Meritage CEO Steven Hilton said the company is ramping up construction, anticipating that the incentive will boost sales in the coming months. "We are gearing up for the 2010 spring selling season," he said.
There were 231,000 new homes for sale at the end of December, down about 2 percent from November and the lowest inventory level since April 1971. But at the current lackluster sales pace, that still represents 8 months of supply -- above a healthy level of around 6 or 7 months.
John Freer, president of Riverworks Inc., a custom home builder in Missoula, Mont. who builds environmentally sustainable homes, said traffic and sales have been picking up. Along with the tax credit, he said, "I think people are a little bit more optimistic than they were last year."