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Sales of new homes up a bit

Factory orders also rise sharply, offering a bright note amid economic worries.

By Times wires
Published August 25, 2007

Sales of new homes nationwide perked up, while factory orders took off in July, raising hopes that the economy can safely weather financial turmoil that has shaken Wall Street.

The Commerce Department reported Friday that sales of new homes rose 2.8 percent in July, after falling 4 percent in June. The increase in July lifted sales to a seasonally adjusted annual rate of 870,000 units. A second report showed that orders to factories for big-ticket goods jumped 5.9 percent in July, the most in 10 months.

In the South, homes sales ticked up 0.6 percent from June to July, but that doesn't mean Florida builders are sitting pretty. The region includes places like North Carolina, South Carolina and Tennessee, where the housing market is relatively healthy.

Both reports were better than analysts had expected. They were forecasting home sales to fall and were calling for a much smaller, 1 percent gain in factory orders.

Nationally, the median price of a new home was $239,500 in July, up from $238,100 in July a year ago. The median price means half sell for more and half sell for less. The average home price dropped, however, to $300,800 in July, down from $311,300 for the same month last year.

The report on July home sales comes as credit standards have been tightening on home mortgages. Credit problems took a turn for the worse in August, making it even harder for some would-be buyers to get financing. That means home sales in the coming months will likely show renewed weakness, economists said.

"We were getting some signs of stabilization in July. This was certainly a positive number," said Bernard Markstein, senior economist at the National Association of Home Builders. "If we could wipe out the events of the last several weeks, we would be rejoicing."

By regions, the improvement in sales in July reflected gains in the West, where sales went up by 22.4 percent. Sales tumbled 24.3 percent in the Northeast, however, and were down 0.9 percent in the Midwest.

Even with the overall increase in home sales for July, sales are down 10.2 percent from a year ago, underscoring the toll of the housing slump. In the South, sales were down 3 percent year to year.

If problems persist, the Fed could opt to reduce an important interest rate, called the federal funds rate, on or before Sept. 18, the Fed's next regularly scheduled meeting. The Fed hasn't cut this rate in four years. It is the Fed's main tool for influencing overall economic activity.

The funds rate, the interest banks charge each other on overnight loans, has stayed at 5.25 percent for more than a year. A cut to the funds rate would bring lower interest rates for millions of people and businesses.

In the manufacturing report, the 5.9 percent increase in new orders for durable goods followed a 1.9 percent rise in June. Durable goods are costly manufactured items expected to last at least three years.

Gains were widespread. Orders went up for machinery, automobiles, metal products, airplanes and communications equipment. That blunted a drop in demand for computers, as well as for electrical equipment and appliances.

Orders for automobiles rose 9.8 percent in July, the most since January 2003.

Times staff writer James Thorner contributed to this report.

[Last modified August 24, 2007, 22:52:24]