Well, at least the first couple sentences are good news...

U.S. New-Home Sales Unexpectedly Increased in July (Update1)

By Courtney Schlisserman

Aug. 24 (Bloomberg) -- Sales of new homes in the U.S. unexpectedly rose for the second time this year in July, suggesting the housing market was stabilizing before the rout in credit markets.

Purchases increased 2.8 percent to an annual pace of 870,000 last month from a revised 846,000 rate in June that was greater than previously estimated, the Commerce Department said today in Washington. The level exceeded the highest estimate in a Bloomberg News survey of 73 economists.

New-home sales are likely to show renewed weakness as turmoil in credit markets pushes some mortgage lenders out of business and prompts others to tighten requirements for loans. Federal Reserve policy makers are predicting the worst housing slump in 16 years will remain a drag on economic growth.

``Given the current restrictiveness of credit, there's no question that home sales are going to be curtailed, certainly in the short run,'' Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said before the report.

A separate government report earlier today showed that orders for goods made to last several years rose more than forecast in July. Durable goods orders climbed 5.9 percent after gaining 1.9 percent the month before, the Commerce Department said.

Treasuries, Stocks

U.S. Treasury notes pared gains after the home-sales report and stocks gained. The yield on the benchmark 10-year note was 4.63 percent at 10:05 a.m. in New York, from as low as 4.61 percent earlier. The Standard & Poor's 500 stock index rose 0.3 percent to 1,466.78 and the S&P homebuilders index increased 0.6 percent.

Economists forecast today's figure would total 820,000 from a previously reported 834,000 pace in June. Predictions ranged from 770,000 to 860,000.

Compared with a year earlier, purchases were down 10 percent in July.

The median price of a new home rose 0.6 percent to $239,500 last month, today's report showed. Inventories of unsold homes dropped to 7.5 months at the current sales pace.

The number of homes for sale at the end of the month declined to 533,000 in July, from 538,000 a month earlier. The number of places that are completed and waiting to be sold fell by 4,000 to 175,000.

Sales increased in two of four regions, today's report showed. They rose 22 percent in the West and 0.6 percent in the South, the largest region for new home purchases. Sales dropped 24 percent in the Northeast and 0.9 percent in the Midwest.

Credit Crunch

The American housing recession shook global credit markets last week as sinking values of mortgage debt led to a freezing up of some firms' access to capital. Countrywide Financial Corp., the largest U.S. mortgage lender, tapped a credit line from its banks after being shut out of the commercial-paper market. Bank of America Corp. this week agreed to invest $2 billion in the company, helping a turnaround in its stock.

Fed officials, who said all year that the housing slump was contained, have acknowledged the downturn will extend further than they anticipated.

``Recent data on actual housing-market activity have dampened my optimism'' about a bottoming-out in the industry, Richmond Fed President Jeffrey Lacker said on Aug. 21. Tighter credit conditions ``could further dampen residential investment,'' he added.

Fed Chairman Ben S. Bernanke and his team are trying to calm the upheaval in credit markets without cutting the benchmark U.S. interest rate. On Aug. 17, the central bank cut the discount rate, on direct loans to banks, in an effort to increase the availability of capital.

Rate Expectations

Investors and many economists expect the central bank to cut the main rate, for overnight loans between banks, by at least a quarter point at or before the next meeting, on Sept. 18. Lacker said the impact of ``financial turbulence'' on the broader economy will determine the Fed's decisions.

Even before last week's market rout, the National Association of Realtors lowered its 2007 forecast for new and existing home sales for an eighth time this year. The Chicago-based group forecast that new home purchases will total 852,000 this year, down from 1.05 million in 2006.

Toll Brothers Inc., the largest U.S. luxury homebuilder, said Aug. 22 that its fiscal third-quarter profit fell 85 percent as it was forced to write down property values. Revenue from traditional home sales declined 21 percent and order cancellations jumped 18 percent.

``During this downturn, we have experienced a much higher rate of cancellations than at any time in our 21-year history as a public company,'' Chief Executive Officer Robert Toll said in a statement.

Weighing on Growth

Residential construction subtracted 0.5 percentage point from growth in the second quarter, following a 0.9 percent drag in the first three months of the year, according to Commerce Department estimates released July 27. The government is scheduled to release revised estimates for the period from April through June on Aug. 30.

Homebuilding continued to fall at the start of this quarter. An Aug. 16 Commerce Department report showed that housing starts fell 6.1 percent in July to an annual rate of 1.381 million, the lowest level in a decade.

``Larger declines in residential construction are quite possible,'' said Steven Wieting, managing director of economic and market analysis at Citigroup Global Markets Inc. in New York.

The Realtors group is scheduled to release its existing home sales report on Aug. 27.

Home resales, which make up about 85 percent of the housing market, are counted when a contract is closed. New home purchases are considered a leading measure of demand because they are recorded when an agreement is signed.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Last Updated: August 24, 2007 10:14 EDT

It will be interesting to see if this number is revised next month. Since New Home Sales are counted when a contract is signed some may have fallen out due to inability to obtain financing during the last week in July through current credit crunch. A significant downward revision in the number of contracts that stick would not surprise me.

The number also begs the question...were things starting to get better for sales before the bottom fell out in the sub-prime slime?? Based on Toll Bros. earnings report...probably not...but that is a trailing indicator.

/t