New Homes Sales Rise But Prices Fall

New home sales posted an unexpected gain in July, according to a government report Friday a rare ray of good news in the stormy housing market but economists warn the glint of sunshine is likely to be short-lived.

New home sales rose 2.8 percent to an annual rate of 870,000 from a revised 846,000 rate in June, the Commerce Department reported. Economists had been looking for sales to fall to a rate of about 825,000, a level that would have been a seven-year low.

Even with the unexpected rise, the pace of sales only looked good by comparison to very weak sales seen so far this year. The pace of sales is still off 10.2 percent from year ago levels, and the July sales pace would have been lower than any monthly reading seen from October 2001 through January of this year.

Much of the increase came in the West, which saw sales jump 22 percent from June. The South posted only a 0.6 percent rise, while the Midwest and Northeast continued to see new home sales fall. All four regions have sales well below year-earlier levels.

Economists said that problems in the secondary market for mortgages seen in August, which has made subprime mortgages and the so-called jumbo mortgages more difficult to come by, will hit results going forward.

"We were in a slightly stronger position going into this latest hurt than we thought we were. That's the good news," said Bill Hampel, chief economist for the Credit Union National Association. "But this is probably the last bit of good news we'll get from this market for a long time."

This latest report was unexpected but it would appear from the comments that the worst in the housing market is far from over. There are still many hurdles to overcome such as the expected foreclosures, stricter underwriting guidelines and higher mortgage interest rates which could derail any unexpected uptick in the housing market.

I have said for some time that any extended housing slump will push the economy into recession and I stand by that prediction. I hope I am wrong and that the downturn will just slow growth and not push us into recession.