New-home sales in the U.S. improved in July from a 17-year low and construction cutbacks by builders reduced the glut of properties on the market by the most in almost five decades.

Sales increased 2.4 percent to a 515,000 annual pace that was lower than anticipated after a revised 503,000 rate in June, the Commerce Department said today in Washington. The number of unsold homes on the market fell 5.2 percent, the most since November 1963, to a 416,000 pace.

Lower prices have made homes more affordable for Americans still able to obtain a mortgage, stemming the slide in demand and making it more likely the property glut will clear. A more stable housing market would eliminate one of the biggest risks to the economy even as the credit crisis and job losses threaten growth.

``We're hopefully getting in the vicinity of a bottom,'' David Resler, chief U.S. economist at Nomura Securities International Inc. in New York, said before the report. Still, ``we're a long way from a recovery. We'll see activity at low levels for a while.''

Economists forecast new-home sales would drop to a 525,000 annual pace from an originally reported 530,000 rate the prior month, according to the median estimate in a Bloomberg survey of 76 economists. Forecasts ranged from 493,000 to 570,000.

The median price of a new home decreased 6.3 percent to $230,700, from $246,200 a year earlier.

Cheaper Gasoline

Consumer confidence in August increased more than forecast in August as cheaper gasoline improved Americans' moods, a private report showed. The Conference Board's confidence index rose to 56.9 from 51.9 in July.

Another report today showed home prices fell at a slower pace in the second quarter, signaling the slump may be starting to stabilize. Home values declined 2.3 percent from the previous three months, compared with a 6.8 percent drop in the first quarter, according to the S&P/Case-Shiller index.

Sales of new homes were down 35 percent from July 2007, the Commerce report showed.

The supply of homes at the current sales rate fell to 10.1 months' worth from 10.7 months in June. Still, real-estate industry groups have said a five to six months' supply signal a balanced market.

While accounting for only about 15 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Weakness Masked

Resales increased 3.1 percent in July, the National Association of Realtors said yesterday. The gain masked further weakness as inventories surged to a record high level of 4.67 million unsold houses and condos.

Inventories of new properties are likely to keep shrinking as builders pull back. Ground was broken on the fewest new houses in 17 years in July, and permits, a sign of future construction, also fell, Commerce Department figures showed.

Government officials remain pessimistic.

``We have a ways to go before we start seeing a turnaround,'' Housing and Urban Development Secretary Steve Preston said yesterday in an interview. ``We'll be well into 2009 before we see some real energy in this market.''
New home sales increased in two of four regions from the prior month, led by a 39 percent jump in the Northeast. Purchases declined 8.2 percent in the Midwest and 2.5 percent in the South, today's report showed.

Company results reflect the distress. Home Depot Inc. and Lowe's Cos., the world's two largest home-improvement retailers, posted declines in second quarter profit.

``We continue to see pressure on our market and the consumer,'' Home Depot Chief Executive Officer Frank Blake said in a statement last week.

Source: Bloomberg, August 26, 2008