New Home Sales in March came in higher than expected, even as prices fell from this month last year. According to Bloomberg, the Commerce Department reported that builders tallied sales last month at an annual pace of 356,000, down just slightly from February.

Inventories dropped to the lowest level in 7 years, while prices dipped to levels not seen since December 2003.

Without a doubt, lower inventories and sales activity that is becoming somewhat less abysmal than before is a good sign for homebuilders, who saw their stock prices jump today. Lennar (LEN) popped 14.99%, Hovnanian (HOV) rose 10.75% and Pulte Home (PHM), who recently announced plans to buy Centex (CTX), finished higher by 7.34%.

At the risk of being labeled perma-bears, while the news was cheered by most industry experts, that doesn’t mean builders will begin breaking ground any time soon on new developments. And since homebuilders make money by, well, building homes, the group still isn’t out of the woods. As prices keep falling in line with broader measures of home prices, building houses will remain a non-economic enterprise for the foreseeable future.

When will that trend reverse? While it’s anyone’s guess, a good sign would be when builders start buying finished lots that currently can barely be given away for free.

By RYAN TAYLOR

The Commerce Department reported a 14.7% drop in the seasonally adjusted rate of new home sales in December. Builders unloaded just 482,000 homes, the lowest number since 1982, while the median price slipped 9.3% from December 2007 to $206,500.

Tough to find a silver lining in this release, the numbers pretty much speak for themselves.

Homebuilders are literally drowning in their own supply, as ill-fated decisions to keep building through the early stages of the housing downturn are coming back to haunt the likes of Centex, Toll Brothers and Lennar. The data could not be more clear: Buyers are not willing to pay for new homes at their current prices. Nevertheless, the homebuilders, completely out of touch with reality, are begging Congress to pass legislation to encourage buyers to step back into the market.

With so many foreclosures in areas inundated with new construction, potential buyers are opting to pay far less for houses just a few years old, while the new ones sit vacant. Builders can’t lower their prices to compete at market levels, as the losses would likely put many out of business.

Which is exactly what needs to happen.

As I have written previously, there will be no bottom in the housing market — or even meaningful stabilization — until at least one, if not more of the major homebuilders goes under. The alternative, which would dramatically extend any future recovery, would be an auto industry-style bailout.

These unnecessary zombies of companies need to start feasting on one another before their industry can return to normalcy. The time for consolidation is now!