New home sales post modest increase

New home sales post modest increase

	Published : Wed, 25 Apr 2007 20:53 By : Agencies Print this Story

WASHINGTON (AP) - Sales of new homes, helped by better weather, posted a modest increase in March, but the gain was less than expected and did not dispel concerns about continuing troubles in the housing industry.

The Commerce Department reported Wednesday that new single-family home sales rose to a seasonally adjusted annual rate of 858,000 units in March, an increase of 2.6 percent from February, which had been the slowest sales pace in nearly seven years.

The March improvement was half what analysts had forecast and left the sales pace 23.5 percent lower than a year ago as the housing industry continues a painful adjustment after a boom period in which sales of new and existing homes set records for five straight years.

The weaker-than-expected performance of new home sales followed a report Tuesday that sales of existing homes had fallen by 8.4 percent in March, the biggest drop in 18 years, leaving sales of existing homes at an annual rate of 6.12 million units.

In other evidence of housing's troubles, the Federal Reserve said Wednesday that home sales continued to weaken in much of the country through mid-April. Many Fed districts reported continued declines in home construction as builders try to reduce record levels of unsold homes.

The slump in housing, which began last year, has been a significant drag on economic growth. Analysts expect those troubles to continue as rising mortgage foreclosures dump more homes on the market and cause lenders to toughen their standards, making it harder for prospective buyers to qualify for loans.

The median price of a new home sold in March rose to $254,000, a 6.4 percent increase over a year ago. But analysts said the figure was skewed because the biggest jump in sales occurred in the Northeast, where home prices are generally higher than elsewhere.

David Seiders, chief economist at the National Association of Home Builders, said the latest housing data was a disappointment after hopes had been raised last year that the housing slump might be ending. He and other analysts attributed this year's weakness to troubles in the mortgage market, especially in subprime loans, which are offered to borrowers with weak credit histories.

Seiders said his monthly survey of builder attitudes found a heavy use of incentives, with half of the builders saying they were cutting prices to make sales.

'The builders are well aware of the difficulties and they are intensifying their efforts to move inventory, but it is becoming doubly difficult because of the mortgage situation,' Seiders said.

Patrick Newport, an economist at Global Insight, predicted that new home sales would fall 10 percent this year, following an 18.1 percent drop in 2006.

Sales of new and existing homes set sales records for five straight years before 2006, a boom that drove prices up sharply in some regions. Many investors bought second homes in hopes of quickly reselling them for profits.

For March, sales posted the biggest increase in the Northeast -- 50 percent -- followed by a 9.8 percent rise in the Midwest. Winter storms depressed February's activity in those areas.

Sales fell 2.7 percent in the South and were down 0.9 percent in the West.

In other economic news, the Commerce Department said Wednesday that orders to U.S. factories for big-ticket manufactured goods rose 3.4 percent in March, the fastest clip in three months.

Much of the strength came from a 37.6 percent surge in demand for commercial aircraft. However, orders for business capital goods excluding aircraft also increased by 4.7 percent, the biggest gain in 2 1/2 years.

Still, analysts said manufacturing remains under pressure from the slowing economy, which they believe grew at a sluggish pace of 1.8 percent in the first three months of this year. That would mark the weakest showing since late 2005, when the country was recovering from Hurricane Katrina.

The government will release its first look at economic growth in the January-March quarter on Friday.