New home sales tick up while prices fall

"Today's report is right in line with our forecast for modest and gradual improvement in sales activity through the remainder of the year," said David Crowe, chief economist with the National Association of Home Builders. 

"Particularly encouraging is the fact that builders continue to hold down their inventories to match the current sales rate, with the number of new homes for sale now down to a sustainable, 6.3-month supply."

The seasonally adjusted estimate of new houses for sale at the end of October dropped to a record-low 162,000, a supply of 6.3 months at the current sales rate — a drop of nearly 26 percent in the past 12 months. 

Home builders are battling a housing market inundated with cheaper existing sales and foreclosures. 

Meanwhile, potential homebuyers are finding it more difficult to obtain a mortgage or come up with higher downpayment amounts while loan rates remain at tempting historic lows. The 9 percent unemployment rate also is burdening a more significant housing market recovery.

"Builders have been seeing some marginal improvement in sales activity over the past few months, particularly in select markets where consumer confidence is higher due to improved economic conditions," said Bob Nielsen, chairman of the National Association of Home Builders. "While this trend is encouraging, overall sales activity is still well below normal due to the effects of overly tight credit conditions for builders and buyers, the continued flow of distressed properties on the market and inaccurate appraisal values on new homes."

There is a possibility that sales this year won't fare much better than the 323,000 new homes sold in 2010 — the worst showing since records were kept in 1963. 

Sales of previously owned homes aren't looking much better, either. The National Association of Realtors said last week that sales were up slightly — 1.4 percent —  to 4.97 million units last month, but still well below the 6 million that represent a healthy market, according to economists. 

A higher rate of contract failures has held back a sales recovery for existing homes —  failures jumped to 33 percent in October from 18 percent in September, and were only 8 percent a year ago. 

Across the country, sales of new homes were mixed in October — they were up 22.2 percent in the Midwest and 14.9 percent in the West. They were unchanged in the Northeast and dropped 9.5 percent in the South.