New home prices took a heck of a hit in September according to information released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Thursday. This disquieting news came hard on the heels of a National Association of Realtors survey released on Wednesday that showed declines in both the sales and the median prices of existing homes.

New home sales in September were actually up 5.3 percent from the revised August sales figures of 1,021,000 to an annualized figure of 1,075,000. The sales increase was unexpected but, according to Rex Nutting of CBS Marketwatch, figures released for sales in June, July and August have subsequently been revised downward by total of 67,000 annualized sales units for the three months, continuing a pattern of downward revisions to the originally reported data. The August data alone was revised from an original estimate of 1.050,000 million annualized units to 1,021,000. The message is, don't take the spike in sales too seriously until the data shakes out.

Price wise the news was bad. The median sales price of new houses sold last month dropped to $217,100 compared to $225,000 in August and representing a 9.7 percent decline from September of last year. This is, according to the Associated Press, the sharpest drop in year-over-year median prices in 35 years and the lowest median price for a new home since September 2004. There are many reports of incentives being offered by builders to encourage sales while keeping the reportable prices high. In other words, a builder may offer an upgrade in materials, or even an unrelated perk such as a vacation trip or a shopping spree to make the list price of a home more attractive. These incentives don't dampen prices but do impact seller profit and if rumors are true and if these perks were recorded, median prices would undoubtedly be even lower than reported.

There is a current inventory of new homes that, at the present sales pace, will take 6.4 months to absorb. This is down slightly from the 6.8 month supply available in August but up a whopping 33.3 percent over the supply available one year ago.

Regionally new home sales were all over the place. In the Northeast sales were down 34.5 percent but up 6.9 percent in the South and 23.9 percent in the West. The other two regions were in the minus column by single digits.

A caveat in reading the report: confidence intervals - that is the degree by which the data might actually wrong - are exceptionally large. The interval for sales data for the U.S. is 12.2 percent and for the Northeast 37.0 percent. Such high intervals make single digit changes from month to month nearly meaningless.

New home sales are reported when the builder and the buyer sign a contract so sales are subject to cancellation and renegotiation and we hear that these are a frequent occurrence in the current market.

Existing home sales were down 1.9 percent to a seasonally adjusted annual rate of 6.18 million units for the month. This was a dip of 14.2 percent from September 2005, which was, however, the third strongest month for home sales in history. The NAR survey includes previously occupied single family homes, condos, co-ops, and townhouses.

Inventories were also down, falling 2.4 percent to 3.75 million existing homes currently on the market. This is a 7.3 month supply. Last month the inventory represented a 7.5 month supply.

Like new house prices, the median price of an existing house dropped in September to $220,000 compared to the August median of $225,000 and to the July price of $230,000. In September 2005 the price was also $225,000 which makes this the second time since 1995 that year-over-year prices decreased - the first occasion was last month.

Single family home sales were off 1.6 percent to a seasonally adjusted annual rate of 5.42 million units from 5.51 million in August. The median price of an existing single family home fell 2.5 percent from the same period in 2005 to $219,000. Condo and cooperative sales were down 3.2 percent from August rates and 16.0 percent off of September 2005 sales rates. Condo prices dropped 2.8 percent from September 2005 to $219,500.

The NAR cited survey results as indicating a stabilizing market which "should build confidence in the housing market." David Leheah, NAR's chief economist said. "Considering that existing-home sales are based on closed transactions, this is a lagging indicator and the worst is behind us as far as a market correction - this is likely the trough for sales. When consumers recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the market, and sales will be at more normal levels in the wake of the unsustainable boom that we saw last year." He noted sales already are improving in some areas.