I thought everything was looking better...guess not. AP Homebuilders Report Drop in Sales Tuesday January 9, 6:36 pm ET By David Koenig, AP Business Writer 2 Homebuilders Say Orders Fell Late Last Year in Sign Housing Still Sluggish DALLAS (AP) -- D.R. Horton Inc., one of the nation's largest homebuilders, said Tuesday its late-2006 sales orders fell 28 percent, dampening sentiment that the housing sector may be recovering from a slump. The news was even worse from another builder, Meritage Homes Corp., which said net sales orders fell 42 percent and cancellations hit a record 48 percent. Housing contracts and sales of new homes have been falling for about a year after the industry enjoyed an unprecedented five-year boom. Economists and analysts are split about whether the housing market has bottomed. Each camp can cite economic statistics to support its view. Fort Worth-based D.R. Horton said it received orders for 8,771 homes worth $2.29 billion in the last three months of the year, compared with orders for 11,463 homes worth $3.17 billion a year earlier. Meritage, based in Scottsdale, Ariz., said net sales in the quarter were 1,201 homes totaling $356 million, down from a record 2,072 orders for $723 million a year earlier. But Horton also provided a glimmer of hope for those who believe housing is recovering, saying its cancellation rate -- the number of orders canceled divided by gross sales orders -- fell to 33 percent in the last three months of 2006 from 40 percent in the July-September quarter. Still, that's about twice the company's typical cancellation rate in the high teens, and Chairman Donald R. Horton said the company was forced to offer buyer incentives in many areas of the country. Daniel Oppenheim, an analyst for Bank of America, said the company appeared to suffer fewer last-minute cancelations, indicating it was more flexible in working with buyers who planned to back out. Margaret Whelan, an analyst for UBS, said the decline in the cancellation rate indicates that the housing market is stabilizing and buyers are increasingly confident. She predicted that price declines will slow over the coming months. In recent years, builders have bullishly bought up land with plans to take advantage of a hot real estate market. But they have retrenched in recent months. Last summer, Horton took pretax charges of $199 million to write down the value of land, options to purchase additional land, and pre-acquisition costs. Figures that Horton released Tuesday gave clues about geographic differences in the housing market. Net sales orders fell in every region, but the decline was sharpest in the Northeast (31.8 percent), the south central states including Texas (29.7 percent), and the West other than California (23.1 percent). Despite the slump in sales, average selling prices rose in those three regions. That didn't surprise Delores Conway, director of the Casden Real Estate Economics Forecast at the University of Southern California. Conway said builders will offer incentives -- from granite countertops to a free car -- before cutting prices in a development. "The price is going to be the last thing to fall," she said. "If they cut prices for new buyers, the previous buyers feel ripped off and they want the price cut too. (Builders) don't do that." Nationwide, Horton's average selling price fell 5.4 percent, with the sharpest declines in the Southwest (22.2 percent) and the Southeast (10.2 percent). Some areas in those regions, notably Phoenix, Las Vegas, and parts of Florida, had attracted investors who hoped to flip the houses or rent them rather than live in them. Added to the normal traffic of people selling their homes, this led to a glut of for-sale signs that depressed prices. Prices edged down 1.9 percent in California, where net orders fell 18.1 percent. The company didn't provide cancelations or cancellation rates by region. Conway said Horton's report, particularly the slowdown in cancelations, suggested that the housing market is nearing its bottom. But the slump could be prolonged, she said, if owners of existing homes who have delayed selling dump their houses on the market this spring. D.R. Horton plans to report quarterly earnings Jan. 23. Shares of Horton rose 8 cents, to $25.47, and Meritage shares fell 8 cents, to $43.34 in trading on the New York Stock Exchange.