New-home sales drop

WASHINGTON — New-homes sales tumbled in August to the lowest level in seven years, a stark sign that the credit crunch is aggravating an already painful housing slump.

Sales of new homes dropped 8.3 percent in August from July, the Commerce Department reported Thursday, driving down sales to a seasonally adjusted annual rate of 795,000. That was the lowest level since June 2000.

"This is just hideous," said Ian Shepherdson, chief economist at High Frequency Economics.

The home sales report came on the same day that the government reported a relatively brisk business growth rate in revised figures for the second quarter. But the 3.8 percent pace was less than previously estimated, and it occurred before the credit crisis and its repercussions across the broad spectrum of the economy had taken hold.

Home prices tanked. The median sales price in August fell by 7.5 percent from a year earlier to $225,700. That was the biggest drop in percentage terms in nearly 37 years. The median price is the middle point at which half sell for more and half for less.

The average sales price dropped by 8 percent in August from a year earlier to $292,000. That was the biggest decline in 17 years.

Sales fell in the South and the West in August compared with July. Sales, however, rose in the Northeast and Midwest.

The new-homes sales report, combined with other recent economic reports showing a sharp drop in demand for big-ticket manufactured goods in August, suggested the economy lost momentum as it headed into the fall.

On Wall Street, though, stocks rose. The Dow Jones industrial average gained 34.79 points to close at 13,912.94. Investors found a silver lining in the weak home-sales report. They believed it would increase the odds of a rate cut by the Federal Reserve next month, and thus investors bid stock prices higher.

Another report issued by Commerce showed the economy staged a rebound in the spring before a credit crisis raised new fears about longer-term business health.

The economy's 3.8 percent growth rate in the April-to-June quarter was the strongest showing in just over a year. The new reading was slightly less robust than a previous estimate of a 4 percent growth rate. Nonetheless, it still marked a substantial improvement over the feeble 0.6 percent growth rate registered in the prior quarter.

Gross domestic product is the value of all goods and services produced within the United States and is considered the best barometer of the country's economic health.