New-Home Sales Rose in August
Defying Wall Street Expectations

New-home sales unexpectedly climbed during August, breaking a string of three declines as the median price for a house compared to a year earlier was lower.

Meanwhile, demand for durable goods unexpectedly fell during August in a fairly broad-based decline, and an indicator of business equipment investment dipped.

Sales of single-family homes increased by 4.1% to a seasonally adjusted annual rate of 1.050 million, the Commerce Department said Wednesday. July sales fell 7.5% to 1.009 million, revised from a previously estimated 4.3% decline to 1.072 million. Sales dropped 0.9% in June and 1.8% in May. Demand was flat in April.

Wall Street expected slightly lower sales in August. The median estimate of 25 economists surveyed by Dow Jones Newswires was a 2.5% decline to a 1.045 million annual rate.

Sales might get a boost from easing home prices. The average price of a new home decreased to $304,400 in August, down from a revised $314,200 in July -- yet above $295,000 in August 2005, according to Commerce. The median price rose to $237,000 from a revised $236,200 in July; the price in August 2005, however, was higher, at $240,100.

Year-to-year, sales were down 17.4% since August 2005 as the housing market softens. The National Association of Realtors reported Monday sales of previously owned homes fell a fifth month in a row during August even as the median price sank year-over-year for the first time since April 1995.

Financing costs are higher than a year ago. The average rate on a 30-year mortgage in August was 6.52%, which, while below July's 6.76%, was above August 2005's 5.82%.

Declining prices can make homeowners feel less wealthy and chill their spending on goods and services -- worrisome for the economy. On the other hand, falling prices can help the housing market by making homes more affordable and reducing the rising tide of unsold homes.

There were an estimated 568,000 homes for sale at the end of August, the Commerce data Wednesday showed. That represented a 6.6 months' supply at the current sales rate. An estimated 570,000 homes were for sale at the end of July, a 7.0 months' inventory. The August 2005 supply was 4.6. Growing supply gives buyers the power to wait for an acceptable price, analysts say.

By region, new-home sales in August rose 11.1% in the South, 12.2% in the Midwest and 21.7% in the Northeast. Sales fell 17.7% in the West. Based on figures unadjusted for seasonal factors, an estimated 91,000 homes were actually sold last month in the U.S., up from 85,000 in July.

Durable Goods Weakness

Durable-goods orders decreased by 0.5% last month to a seasonally adjusted $209.75 billion, the Commerce Department said Wednesday. Durables had gone down by 2.7% in July, revised from a previously estimated 2.5% drop. The last back-to-back decline occurred in April and May 2004, when orders fell 3.3% and 0.9%.

A key barometer of business equipment spending -- orders for nondefense capital goods excluding aircraft -- decreased by 0.3%, after rising 0.9% in July. Shipments for nondefense capital goods excluding aircraft increased by 0.3%, after climbing by 1.6% in July; the shipments are used in calculating gross domestic product.

The 0.5% drop in overall durable goods orders surprised Wall Street. The median estimate of 27 economists surveyed by Dow Jones Newswires had durables up by 0.5% during August.

A report earlier in the month indicated slowing growth in the manufacturing sector. The Institute for Supply Management said its index of manufacturing activity moved to 54.5 in August from 54.7 in July. And another report showed mid-Atlantic region manufacturing unexpectedly dipping into negative territory during September; the Federal Reserve Bank of Philadelphia reported a -0.4 reading of its business conditions index. Economists had expected 15.0. August saw 18.5 on the gauge.

Durable goods orders would have fallen further in August if not for a boost from the transportation sector. Commerce reported transportation orders increased 3.7% in August, after falling 9.5% in July. Orders for commercial planes dropped 21.9%, while military aircraft orders increased 9.8%. Motor vehicles and parts rose by 4.4% last month.

Orders for all durables except transportation goods declined 2.0%, after flattening in July. Demand increased 2.6% for fabricated metals but fell 9.2% for electrical equipment, 2.1% for machinery, 4.7% for computers and electronics, and 2.1% for primary metals. The drop in electrical equipment was the largest since 11.7% in January 2002.

Capital goods orders fell by 2.4% last month a second time in a row. Non-defense capital goods -- items meant to last 10 years or longer -- fell 3.5%. Defense-related capital goods orders increased by 6.1%.

Orders for everything except defense goods decreased 0.8% last month, after going 2.2% lower in July.

Durable-goods inventories of manufacturers increased 0.2% last month. Unfilled orders climbed by 0.4%, and shipments increased 1.9%.

Email your comments to rjeditor@dowjones.com.