The Jones Report - Real Estate News from Sally Forster Jones

Sales of new homes rose in June more than forecast following an unprecedented collapse the prior month, a signal the worst of the slump triggered by the end of a government tax credit is over.

Purchases increased 24 percent from May to an annual pace of 330,000, figures from the Commerce Department showed Monday in Washington. The rate was the second-lowest in data going back to 1963 after May's downwardly revised 267,000 pace.

The lowest mortgage rates on record may help underpin demand, stabilizing the industry that triggered the worst recession since the 1930s. Even so, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 percent and the economy cools.

"We'll probably reach an equilibrium level over the next couple of months and I wouldn't be surprised if we slog along the bottom," Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, said before the report. "Until we get a more definitive turn in growth, in particular employment, housing demand is going to remain very soft."

Economists forecast sales would rise 3.3 percent to an annual pace of 310,000, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from 260,000 to 360,000. The government had initially estimated May sales were 300,000.

The median price decreased 0.6 percent from June 2009 to $213,400.

Purchases increased in three of four regions, led by a 46 percent jump in the Northeast and a 33 1 / 8percent surge in the South, the largest area. Demand dropped 6.6 percent in the West to a record low 57,000 pace.

The supply of homes at the current sales rate fell to 7.6 months' worth from 9.6 months in May. There were 210,000 new houses on the market at the end of June, the fewest since 1968.

To become eligible for a federal incentive worth up to $8,000, buyers had to sign contracts by April 30 and close deals by the end of last month. The surge in demand prior to the April deadline prompted the government this month to extend the closing deadline until Sept. 30 to ensure buyers had enough time to complete transactions.

Purchases of previously-owned homes, which are tabulated when a contract closes, fell a less-than-forecast 5.1 percent in June, sustained by a backlog of deals waiting to settle, figures from the National Association of Realtors showed last week.

New home sales are calculated when a contract is signed. The drop in sales in May came after demand reached an almost two-year high the prior month, according to last month's Commerce Department data.

Builder shares have dropped this year as the housing outlook dimmed. The Standard & Poor's Supercomposite Homebuilder Index, which includes Toll Brothers Inc. and Lennar Corp., has fallen 5.4 percent from Dec. 31 through July 23, while the S&P 500 Index is down 1.1 percent.

With the deadline for signing a contract now past, it will be up to advances in the labor market to support home sales. Private U.S. companies added 83,000 jobs in June, fewer than economists had forecast, and initial jobless claims have averaged 449,700 this month, a sign firings remain elevated.

Another challenge to new home sales is the rising tide of foreclosures. Home seizures jumped 38 percent in the second quarter from a year earlier, RealtyTrac Inc. said last week, putting lenders on pace to claim more than 1 million properties this year.

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