Home sales at 2-year high

WASHINGTON Wed May 26, 2010 5:18pm EDT

1 of 2. Construction workers continue work on a new subdivision of homes in San Marcos, California in this April 23, 2010 file image.

Credit: Reuters/Mike Blake/Files

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WASHINGTON (Reuters) - Sales of new U.S. homes scaled their highest level in nearly two years in April, while orders for long-lasting manufactured goods surged, giving the economy a firmer foundation to resist possible contagion from Europe's debt crisis.

While the data on Wednesday was skewed by a home buyer tax credit and a more-than-doubling in aircraft bookings, it showed the economy's recovery had underlying strength, analysts said.

"The problems in Europe have a downside risk, but I don't think that's going to push the U.S. economy back into recession or slow it to such an anemic pace," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

"Conditions are much better to withstand the fallout from the problems in Europe," he said, where budget cutbacks risk a return to recession.

Sales of new U.S. single-family homes jumped 14.8 percent to a 504,000 unit annual rate last month, the Commerce Department said. Markets expected a 430,000 unit pace.

The jump in sales reflected buyers signing contracts to benefit from a popular government tax credit. A pullback is expected this month. Demand for loans to buy a home has already dropped sharply and held at a 13-year low last week.

In another report, the department said durable goods orders increased 2.9 percent last month to their highest level since September 2008, boosted by a 228 percent surge in bookings for aircraft. Markets had forecast orders increasing 1.3 percent.

Excluding transportation, however, orders unexpectedly dropped 1 percent. But March's gain was revised up to 4.8 percent from 3.5 percent.

Although the report gave a mixed reading on the factory sector, analysts said upward revisions to a host of categories in March were a sign of strength in the manufacturing-led recovery that started in the second half of last year.

They also implied first-quarter growth figures could be revised higher when the government publishes its second estimate on gross domestic product on Thursday.

RECOVERY GATHERING MOMENTUM

The data initially helped markets to shift focus away from Europe's debt woes, but an unsourced report claiming China was reassessing its euro-zone debt holdings brought the region's troubles back on investors' radar.

U.S. stocks ended down, with the blue chip Dow Jones industrial average .DJI closing below the 10,000 threshold for the first time since early February. U.S. government debt prices fell and the dollar rose for a third straight day versus the euro.

Luxury homebuilder Toll Brothers Inc (TOL.N) reported a smaller quarterly loss and said consumer demand was picking up.

"The data demonstrate that, despite the fiscal meltdown in Europe, the recovery in the U.S. is still gathering momentum," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.

"Increasingly, signs are emerging that private domestic demand might just be robust enough to survive Europe's woes, the removal of the fiscal stimulus and a renewed housing downturn, without economic growth slowing too drastically."

Home sales are expected to ebb in the aftermath of the tax credit before trending higher toward the end of the year. Buyers had to sign contracts by April 30 and close the purchase by the end of June to qualify for the federal tax credit.

Sales of new home are measured at contract signing. Sales of previously owned homes are recorded at contract closing and are expected to rise through June when the tax credit ends.

Analysts said a strengthening labor market, affordable house prices and low mortgage rates would support the housing market, whose collapse was the main trigger of the longest and deepest recession since the 1930s.

"The market is absolutely starting to recover, but I think what will happen for the year will be a very steady, slow increase," said Mitchell Hochberg, principal at Madden Real Estate Ventures in New York.

"What you will see at least in May and June is a little bit of a decline because of accelerated sales in March and April."

Despite the jump in sales last month, the median sale price for a new home dropped a record 9.7 percent from March to $198,400, the lowest since December 2003.

However, the blow from slumping house prices was softened by a record drop in the supply of homes on the market to the lowest level since October 1968. Last month's sales pace left homes available for sale at 5.0 months supply, the lowest since December 2005, compared with 6.2 months in March.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)

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