Look on the bright side.  It’s not as bad as yesterday’s numbers in the existing-home market, although it certainly comes close.  But otherwise, there is no other way to paint today’s report from the Commerce Department on the 12% drop in new-home sales in July as anything other than disastrous:

Sales of new single-family houses in July 2010 were at a seasonally adjusted annual rate of 276,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent (±10.8%) below the revised June rate of 315,000 and is 32.4 percent (±8.7%) below the July 2009 estimate of 408,000.
The median sales price of new houses sold in July 2010 was $204,000; the average sales price was $235,300. The seasonally adjusted estimate of new houses for sale at the end of July was 210,000. This represents a supply of 9.1 months at the current sales rate.

The only reason that inventory didn’t extend out to 12.4 months, as it did in the existing-home market, is because new construction has slowed considerably.  Even at 9 months, it’s too high.  That number will have to drop significantly to entice construction and create jobs, but right now, it looks like several months before the numbers start to move.

The annual-on-annual plunge of 32.4% is more significant.  Analysts have asserted that the slowdown is the natural reaction to the end of the homebuyer tax breaks, but this proves that something else is going on.  Last summer’s numbers were nothing to cheer, and we’re down almost a third from there, before the tax breaks went into effect.  Why?  Simply put, a lot more people are out of work since last year, and we have much less demand as a result.

Reuters, of course, declares this news unexpected:

New single-family home sales unexpectedly fell in July to set their slowest pace on record while prices were the lowest in more than 6-1/2 years, government data showed on Wednesday.

The Commerce Department said sales dropped 12.4 percent to a 276,000 unit annual rate, the lowest since the series started in 1963, from a downwardly revised 315,000 units in June.

Analysts polled by Reuters had forecast new home sales unchanged at a 330,000 unit pace last month.

They missed yesterday’s numbers by fourteen points, and today’s by twelve points.  What do you say, Reuters — time for new analysts to poll?

Update II: More from the AP, which avoided Reuters’ favorite adverb:

Builders have sharply scaled back construction in the face of weak sales. The number of new homes up for sale at the end of July was unchanged at 210,000, the lowest level in about 40 years.

Due to the sluggish sales pace, it would still take more than nine months to exhaust that supply, above a healthy level of about six months.

New home sales were down nationwide. They fell by more than 25 percent from a month earlier in the West, 14 percent in the Northeast, 9 percent in the South and 8 percent in the Midwest.

The median sales price in July was $204,000. That was down 4.8 percent from a year earlier and down 6 percent from June.

Expect more deflation in housing markets this year as sales dive to new lows.