New-Home Sales in the U.S. Drop Less Than Forecast

By Timothy R. Homan

July 25 (Bloomberg) -- Sales of new homes in the U.S. dropped less than forecast last month as builders offered incentives to reduce a glut of unsold properties.

Purchases decreased 0.6 percent to a 530,000 pace from 533,000 in May, a reading higher than previously estimated, the Commerce Department said today in Washington. A separate report showed orders for durable goods unexpectedly rose in June.

The number of properties on the market dropped by the most in four decades, today's report showed, indicating builders are making some headway in clearing out inventories.

``We may have not touched bottom yet in the housing market, but we're clearly not in any freefall,'' Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said before the report.

Stocks climbed and Treasuries slid after today's reports eased concern that the economic slowdown will worsen. The Standard & Poor's 500 Stock Index gained 0.8 percent to 1,261.96 at 10:10 a.m. in New York. Benchmark 10-year note yields rose to 4.06 percent from 4 percent late yesterday.

Economists forecast sales would decline to a 503,000 pace, from a previously reported 512,000 for May, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 480,000 to 530,000.

Durable Goods

Orders for long-lasting goods climbed 0.8 percent in June, Commerce also reported today. May orders were revised to show a 0.1 percent gain, better than previously estimated. Excluding demand for transportation equipment, which tends to be volatile, orders jumped 2 percent, the most this year.

Purchases of new houses reached a low of 513,000 at an annual pace in March.

The median sales prices last month decreased 2 percent from June 2007 to $230,900. These figures can be influenced by changes in the mix of sales at the regional level. For that reason, economists prefer price measures that track the same home over time.

The supply of homes at the current sales rate fell to 10 months' worth from 10.4 months in May. There were 426,000 homes for sale at the end of June at an annual pace, the fewest since December 2004. The figure was down 5.3 percent from the prior month, the biggest decline since November 1963.

A report yesterday from the National Association of Realtors showed existing home sales fell 2.6 percent to a 4.86 million annual rate, the lowest level in a decade. The median home price dropped 6.1 percent from June of last year.

Fannie, Freddie

Concern over the ability of Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, to survive the meltdown in subprime lending has heightened the credit crisis and may push up mortgage rates and further curtail access to loans.

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement.

Lawmakers in Washington, trying to alleviate the worst housing recession in 25 years, are working on passing legislation designed to stem mortgage defaults.

Today's Commerce report showed that compared with a year earlier sales of new homes were down 33 percent.

Cutting Back

Builders are scaling back on projects to get inventories more in line with demand. Housing starts have fallen 53 percent from a peak rate of 2.27 million at an annual rate in January 2006 and residential investment dropped at a 26 percent annual pace in the first quarter.

Confidence among U.S. homebuilders dropped to a record low this month, the National Association of Home Builders/Wells Fargo said July 16.

Pulte Homes Inc., the third-largest U.S. homebuilder, this week reported a second-quarter loss of $158.4 million. ``We see no immediate signs of this housing downturn relenting,'' Pulte Chief Executive Officer Richard Dugas said yesterday on a conference call with analysts.

While sales of previously owned homes account for about 85 percent of the housing market, new home sales are considered a timelier indicator because they are based on contract signings.

New-home purchases fell in two of four regions. They dropped 2 percent in the South and 0.9 percent in the West. Sales rose 5.3 percent in the Northeast and 2.5 percent in the Midwest.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net