Sales of New Homes Rise, But Gains Predicted to End

After falling for three months, sales of new homes rose in August. But the gain was expected to be temporary, as the housing industry struggles with a near-record level of unsold homes.

The Commerce Department reported yesterday that new-home sales increased 4.1 percent last month, the largest showing since an 8 percent increase last March.

But even with the increase, the median price of a new home fell to $237,000, a drop of 1.3 percent from August 2005. It was the first price decline from one year to the next since late 2003.

Sales of existing homes fell for a fifth straight month in August, and the median price of an existing home dipped on a year-over-year basis for the first time in more than a decade. Construction of new homes and apartments fell 6 percent.

Analysts were unimpressed with the August rise in new-home sales, noting that it followed a 7.5 percent drop in July and left sales 17.4 percent below the pace of a year ago.

"August is just a blip. Housing is still headed down," said Mark Zandi, chief economist at Economy.com. "Everything still points to continued weakness in sales, construction and home prices."

Many analysts said the government statistics understated the drop in new-home prices because they do not pick up heavy discounting as builders offer incentives. ,

The inventory of unsold homes declined slightly, to 568,000 houses, but remains the second-highest level on record after July's backlog of 570,000 unsold homes.

"Many builders still have large inventories of unsold homes, and we expect to see aggressive use of sales incentives over the balance of the year," said David Seiders, chief economist at the National Association of Home Builders.

From 2001 to 2005, housing had five consecutive years of record sales, propelled by the lowest mortgage rates in more than four decades.

Sales have been falling this year, however, reflecting the Federal Reserve's two-year effort to push interest rates higher.