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!

By AUSTIN NELSON

The Commerce department released its latest figures for housing starts in the month of October, providing further evidence of an American economy in very poor shape.

Starts for the month came in at a seasonally adjusted annual rate of 791,000, down 4.5% from the previous month. Furthermore, permits for future construction fell 12% to 708,000, indicating that further declines in construction should be expected. The decline is housing starts represented a 38% decrease from last year. Housing starts dropped by 25% from 2006 to 2007, meaning these further declines compound troubles for an already depressed market.

These numbers are the latest in a series of indicators of the continued decline of the U.S. housing market. There are simply not enough qualified buyers to soak up the enormous supply that is being seen nationwide. In the current climate of falling home prices and tighter credit standards, homebuilders cannot attract buyers to purchase their newly constructed homes. With less cash coming in the door, they can’t afford to break ground on new projects.

Drilling down more deeply into the numbers, October’s declines are largely a result of a 31% month-over-month decrease in starts in the Northeast region, where real estate markets have more recently begun to decelerate. This trend is also evidenced by recent surges in pending home sales in the West, while the Northwest is starting to lag.

The data is further evidence the drastic declines of western real estate markets are beginning to spread eastward across the country (Florida notwithstanding). Markets that have previously been strong are now showing signs of weakness and should be expected to continue this trend. Declines in spending within the construction industry are adding drag to the already slowing U.S. economy, which will further decrease the demand for housing.

As we commented yesterday, consolidation in the homebuilder industry isn’t just likely, its inevitable. Just as stronger banks are scooping up their weaker rivals, so too will the “cream” of the homebuilder crop rise to the top of the market.

Click here for details on this House of the Day

Value: $250,000
Projection: Depreciating

Fallbrook is located in Eastern San Diego County, just south of Temecula along Interstate 5. The city and the surrounding area are being adversely effected by the economic slowdown, as much of the growth in the area was due to new home construction. High gas prices are also weighing on consumer spending in an area dominated by commuters. As a result, home prices have fallen dramatically from their peak in late 2005 and continue to fall.

Our property is centrally located, making it more desirable than those on the outskirts of town. There are, however, many listings in the subject’s immediate vicinity. The property also requires some “TLC,” which indicates its condition is likely inferior to its neighbors. Listings in the area range from $273,900 – $549,000. Only three properties have sold in the area since April 15th, all of which are superior in quality to the subject.

515 Shady Glen road – aside from having a suspect address – is a similarly sized home, but in turn key condition. It sold for $265,000 on 6/19/08. The subject is on a slightly larger lot, but the inferior condition, combined with the weak local economy, high gas prices and an oversupply of houses place the value of the subject property at $250,000. Further declines are likely in the near future.