Instant View: New home supply at 42-year low; sales flat

NEW YORK (Reuters) - New U.S. single-family home sales were flat in August, but the supply of houses on the market tumbled to the lowest level in 42 years, government data showed on Friday.

KEY POINTS: * The Commerce Department reported August sales at a 288,000 unit annual rate, unchanged from July's rate, which was revised up from a previously reported 276,000 unit pace. Analysts polled by Reuters had forecast new home sales rising to a 290,000 unit pace in August. * The housing market is starting to stabilize after a downward spiral following the end of a homebuyer tax credit in April. Data this week showed home construction rose last month and sales of previously owned homes crawled off 13-year lows. * But activity in the sector, which contributed to the worst recession since the Great Depression, remains subdued amid a 9.6 percent unemployment rate. * The number of new homes available for sale fell 1.4 percent to 206,000 units, the lowest since August 1968. Despite August's unchanged sales pace, the supply of new homes on the market dipped to 8.6 months' worth from 8.7 months' worth in July.

COMMENTS:

MICHELLE MEYER, SENIOR U.S. ECONOMIST, BANK OF AMERICA MERRILL LYNCH, NEW YORK, NEW YORK:

"This indicates that home buyers remain on the sidelines in an environment of concern about the economic outlook. New home sales never received much of a boost from the tax credits and have fallen off a cliff in recent months. This means builders will continue to cut construction further. This does not bode well for housing and it will continue to be a drag on the economy."

"It also reflects the growing uncertainty and worry among consumers. Clearly there has been a big decline in desire to purchase a home as it a consumers' biggest investment and they are still cautious.

"Housing will be a big drag to third quarter GDP and a more modest drag to fourth quarter GDP in response to declining construction spending. The Fed is still worried about the housing market and this weak data feeds into that, but is not a new concern."

MICHAEL O'ROURKE, CHIEF MARKET STRATEGIST AT BTIG LLC IN NEW YORK:

"Not good. It was basically in line, and the most we could expect given yesterday's existing home sales number, but it doesn't show much improvement. New sales are going to lag existing sales, and existing sales didn't show much improvement. Everyone knows that the housing market is weak and is going to remain weak. We're still in a hangover from the tax credit expiring. So this isn't a good number, but the market isn't selling off on it. We have good durable goods number helping us and also some good data out of China."

BRUCE BITTLES, CHIEF INVESTMENT STRATEGIST, ROBERT W. BAIRD & CO, NASHVILLE:

"The economy is still struggling and the home sales are a part of that. It's not coming as any surprise with jobs being still problematic and no real decisions made on taxes next year. I think it's a combination of a lot of uncertainty out there on the part of the consumer and investors to an extent."

NICK BENNENBROEK, HEAD OF FX STRATEGY, WELLS FARGO, NEW YORK:

"We had softish numbers on the housing data -- unchanged headline number and benign prices. And this is negative for the dollar and as a result we have seen it fall against the euro. Overall, both durables and housing numbers suggest the economy is still weak and that the Federal Reserve is still on track for a second round of quantitative easing."

MICHAEL FEDER, CHIEF EXECUTIVE, RADAR LOGIC, NEW YORK:

"It's anemic at best.

"The problem is entirely based on the fact that buyers are being scared away by the phenomenal overhang of distressed supply. There are too many homes for sale. There's too much expectation that even more homes are going to be for sale. And those homes that are for sale, because of distressed mortgages, are being sold at substantial discounts relative to those that are not.

"The activity in distressed purchases is much stronger relative to all else. Unless we solve the inventory problem, prices will need to fall substantially in our view to get buyers back to the market."

YELENA SHULYATYEVA, U.S. ECONOMIST, BNP PARIBAS, NEW YORK

"This is a weak number despite the July upward revisions. The July number is a very depressed figure. Going forward we expect new home sales will remain sluggish.

"New home sales inventory dipped but remains very high. Distressed properties continue to rob demand from new home sales. We expect housing prices to decline another 5 percent from current levels before stabilizing."

MARKET REACTION: STOCKS: U.S. stock indexes held gains BONDS: U.S. Treasury debt prices trimmed losses DOLLAR: U.S. dollar was little changed