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Sales of new homes rise 5.7 percent on builders' price cuts

WASHINGTON — Sales of new homes rose in September after four straight monthly declines, largely because builders cut their prices in the face of depressed demand.

Analysts say the modest increase on the back of reduced prices suggests the struggling housing market is years away from a turnaround.

The Commerce Department said Wednesday that sales increased 5.7 percent last month to a seasonally adjusted annual rate of 313,000 homes after hitting a six-month low in August. The annual pace remains less than half the 700,000 that economists say must be sold to sustain a healthy housing market.

A big reason for the gain was that the median sales price fell 3.1 percent to $204,400 — the lowest since October 2010. The number of new homes on the market was also unchanged at 163,000, a record low.

"Numbers show that while the housing market still has a pulse, it will not be back on its feet until there is significant job growth," said Mitchell Hochberg, principal of Madden Real Estate Ventures in New York.

The economy remains weak two years after the recession officially ended and the unemployment rate has been near 9 percent since then.

For many, buying a home is too big a risk, even with mortgage rates near historic lows. Others can't qualify for loans or meet higher down payment requirements.

While new homes represent less than one-fifth of the housing market, they have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

In September, sales were uneven across the country. They increased 11.2 percent in the South and 9.7 percent in West. They fell 4.2 percent in the Northeast and 12.2 percent in the Midwest.

Builders are struggling to compete with foreclosures and short sales — when lenders accept less for a house than a mortgage is worth. Those homes are selling at an average discount of 20 percent, and they are lowering neighboring home values. That has made many resales a bargain compared with new homes, creating an average 30 percent disparity in prices.

All home sales remain weak. The number of Americans who bought previously occupied homes fell in September and home sales are on pace to match last year's dismal figures — the worst in 13 years. With three months left to go in 2011, roughly 4.91 million homes are expected to be sold this year. Economists say roughly 6 million older homes need to be sold each year to sustain a healthy housing market.

Durable goods orders show promise

U.S. companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, a positive sign for the slumping economy. An increase in demand for those types of durable goods suggests businesses are sticking with investment plans, despite slow growth and dismal consumer confidence. Orders for so-called core capital goods rose 2.4 percent, the Commerce Department said Wednesday. It was the second straight monthly increase and the largest gain in six months. Overall demand for durable goods fell 0.8 percent, but that was largely because of a huge decline in volatile commercial aircraft orders. Excluding transportation, orders rose 1.7 percent.

Sales of new homes rise 5.7 percent on builders' price cuts 10/26/11 [Last modified: Wednesday, October 26, 2011 7:55pm]
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