New home sales drop 4.3 percent in July

WASHINGTON (AP) _ Sales of new homes dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high. <br/><br/>Piling on more proof that the housing boom

Thursday, August 24th 2006, 10:45 am

By: News On 6

WASHINGTON (AP) _ Sales of new homes dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high.

Piling on more proof that the housing boom is over, the Commerce Department reported Thursday that new home sales fell by 4.3 percent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 percent plunge in February.

The July level of 1.072 million units sold was down 21.6 percent from a year earlier and below the 1.100 million that had been expected by analysts.

``Builders are offering many extras to entice buyers,'' said Peter Morici, a professor at the University of Maryland's business school. ``Overall, values are falling and builders' profits are threatened.''

Sales of both new and existing homes set records for five consecutive years as the housing industry enjoyed a boom powered by the lowest mortgage rates in four decades. But rates have been steadily rising this year as the Federal Reserve tightens credit conditions as a way to slow the economy and keep inflation under control.

Analysts expect home sales to drop by some 10 percent this year.

In other economic news, orders to U.S. factories for big-ticket manufactured goods fell 2.4 percent in July as demand for aircraft and automobiles weakened.

And the Labor Department reported Thursday that the number of Americans filing claims for unemployment benefits last week slipped by 1,000 to 313,000.

Prospective home buyers have turned cautious about making such a big-ticket purchase as mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing, analysts said.

The government reported that the median price of a new home was $230,000 in July, down from $233,800 in June and up from $229,200 a year ago.

The data follow another report Wednesday that also provided evidence of how much the once-sizzling housing market has cooled. Sales of previously owned homes dropped 4.1 percent in July from June to a 2 1/2-year low, while the inventory of unsold homes climbed to a record high, the National Association of Realtors reported.

After stocks slid for three straight sessions, Wall Street struggled to hold on to gains Thursday morning after release of the sluggish home-sales figures and the disappointing report on durable goods. In late morning trading, the Dow Jones industrial average gained 5.52, or 0.05 percent, to 11,303.42.

New orders for durable goods decreased by $5.3 billion last month, the Commerce Department said. The 2.4 percent decline, which followed two straight monthly increases, was a poorer showing than the unchanged level that analysts had expected.

Much of the weakness came from a 9.6 percent drop in demand for transportation equipment, which included a 10 percent decline in new orders for commercial aircraft and parts, and a 7 percent fall in orders for motor vehicles and parts.

U.S. automakers continue to struggle with lagging sales in the face of rising gasoline prices, which have cut demand for previously popular models such as sport utility vehicles.

Analysts believe that output in the manufacturing sector will rise in coming months but at a slower pace than before, reflecting an economy that is slowing under the impact of surging energy prices, rising interest rates and a cooling housing market.

For July, orders for durable goods _ items expected to last at least three years _ totaled $212 billion, a decline of $5.3 billion from the June level.

Excluding transportation equipment, orders were up 0.5 percent in July.