Increase in new-home sales just a 'blip'?

WASHINGTON — Sales of new homes, after falling for three months, rose in August. But the gain was expected to be temporary as the battered housing industry struggles with a near-record level of unsold homes.

The Commerce Department reported Wednesday that home sales increased by 4.1 percent last month, the best showing since an 8 percent increase last March.

But even with the increase, the median price of a new home fell to $237,000, a drop of 1.3 percent from August 2005. It was the first year-over-year price decline since late 2003.

Earlier, it was reported that sales of existing homes fell for a fifth straight month in August while the median price of an existing home dipped on a year-over-year basis for the first time in more than a decade. Also, construction of new homes and apartments plunged by 6 percent in August.

Analysts were unimpressed with the August rise in new home sales, noting that it followed a sharp 7.5 percent drop in July and still left sales 17.4 percent below the pace of a year ago.

"August is just a blip. Housing is still headed down," said Mark Zandi, chief economist at Moody's Economy.com. "Everything still points to continued weakness in sales, construction and home prices."

Many analysts said the government statistics understated the drop in new home prices because they don't pick up heavy discounting that is under way as builders offer incentives such as kitchen upgrades and free landscaping to move unsold homes.

The inventory of unsold homes did decline slightly to 568,000 houses, but that was still the second highest level on record after July's backlog of 570,000 unsold homes.

"Many builders still have large inventories of unsold homes, and we expect to see aggressive use of sales incentives over the balance of the year," said David Seiders, chief economist at the National Association of Home Builders.

From 2001 through 2005, housing enjoyed five consecutive years of record sales, propelled by the lowest mortgage rates in more than four decades.

However, this year sales have been falling, reflecting the Federal Reserve's two-year effort to push interest rates higher to slow the economy enough to keep inflation under control.

After 17 consecutive rate increases, the Fed for the past two months has kept a key short-term rate unchanged. That has raised hopes in financial markets that the Fed's credit tightening campaign is over, a belief that has helped to push mortgage rates lower in recent weeks.