New Home Sales Jump

Sales of newly constructed homes rose 11 percent in June, according to new data released by the Commerce Department, as buyers continue to be drawn back into the market by low prices, tax incentives and mortgage rates that remain near historic lows.

The June figures represented the biggest monthly increase in new home sales in eight years and the third month in a row that sales had risen. The 384,000 new homes sold in June still represent a decline of more than 20 percent from one year earlier, however, as the housing market continues to struggle.

The monthly gain was wholly due to increased sales of new homes priced below $200,000, as sales in higher price range remained flat or declined. With lower-priced homes making up a bigger share of the market, the median sales price declined roughly 5 percent, to $206,200, down from $219,000 in May.

The big jump in sales of lower-priced homes took a big bite out of the inventory of available new homes for sale, which shrank to an 8.8 month supply, down from 10.2 months in June. Available inventory is considered a key indicator of the strength of the housing market, with a six-month supply regarded as the level at which prices tend to stabilize - a smaller supply usually means rising prices, a greater supply usually means prices are falling.

Prices for existing homes up slightly

In another piece of good news for the housing market, a major survey of overall home prices reported its first monthly increase in three years. The monthly Standard and Poor's/Case Shilling Home Price Indices, which tracks sales of existing homes in 20 major metropolitan markets, showed an approximately half a percent increase in May.

More significantly, the annual rate of decline in the S&P/Case Shilling survey showed an improvement for the fourth month in a row, after falling almost every single month since early 2004. That is, home prices in May 2009 were down 17 percent from May 2008, following an 18 percent annual posted in April and an 18.7 percent annual drop in March. The trend line of the annual rate of decline or increase is considered a more reliable indicator of economic trends than the month-to-month changes because it reflects changes over a longer period of time.

Other recent surveys have shown a stronger rebound in housing prices; the National Association of Realtors has reported generally increasing median sales prices of existing homes since the beginning of the year.

Consumer confidence down

Even so, the improving news in the housing markets doesn't appear to be making a big impression on consumer's attitudes toward the economy in general. Consumer confidence declined again in July, for the second month in a row, according to the monthly Conference Board survey, also released on Tuesday. The index, which had rebounded in the spring, fell further than economists had predicted, dropping to 46.6 on a 100-point scale, down from 49.3 in June and 54.8 in May. Analysts linked the decline to increasing unemployment figures and difficulties workers are reporting in finding jobs.