November 29 2007: 12:58 PM EST
NEW YORK (CNNMoney.com) -- The biggest plunge in new home prices in 37 years was not enough to revive October sales, according to the government's latest reading on the battered housing and home building markets. The sales pace for October was well short of economists' forecasts. The Census Bureau's latest report also sharply cut back on its earlier estimates for sales in August and September, when a meltdown in mortgage markets kept many potential buyers from getting the financing they needed. Also depressing sales and prices was a record 191,000 completed new homes on the market that have not yet been sold.
The report showed that the median price of a new home sold in October plunged 13 percent from year-earlier levels to $217,800. It was most severe year-over-year drop since September 1970, when the median price was only $22,600, or less han the cost of a typical new car purchase today.
And the price figure may actually be underestimating how the bottom has fallen out of prices in recent months. Most builders are trying to support prices by offering to cover closing costs or by adding free features on new homes. "We've gone beyond the stage where some of those incentives can work," said Mike Larson, a real estate analyst with Weiss Research, an independent research firm. "We're into the stage that home builders have to cut prices to move inventory."
While existing homes make up a majority of sales, the new homes report is closely watched as a more leading indicator of market strength, since those sales are recorded when a sales contract is signed. Existing home sales figures are collected at the time the sales closes, typically a month or two after the sales contract is signed.