CORRECTED – WRAPUP 2-US home sales surge in June, inventory at 42-yr low

(Corrects economist’s first name to “Paul” in paragraph 21)

* New home sales jump but pace second lowest on record

* Inventory of homes on the market lowest since 1968

* Median home price falls 1.4 percent from May
(Recasts with details, updates market, adds byline)

By Lucia Mutikani

WASHINGTON, July 26 (BestGrowthStock) – Sales of new U.S.
single-family homes rebounded strongly in June from the prior
month’s record low, pushing the number of houses on the market
to the lowest level in nearly 42 years.

But downward revisions to sales estimates for April and
May contained in the report on Monday left in place a picture
of a weak housing market and perceptions that economic growth
moderated somewhat in the second quarter.

New home sales vaulted 23.6 percent to a 330,000 unit
annual rate, the Commerce Department said. Still, the sales
pace last month was the second lowest since records started in
1963.

“We can’t take too much joy in one month’s figure. The
roadblocks to a healthy housing market are high, the most
important one being the still-high jobless rate,” said
Jennifer Lee, a senior economist at BMO Capital Markets in
Toronto.

The percentage increase last month was the largest since
May 1980, and it partially unwound May’s historic 36.7 percent
drop. Analysts polled by Reuters had forecast new home sales
rising to a 320,000 unit pace last month from May’s previously
reported 300,000 units.

The report, together with package delivery and business
services company FedEx Corp’s (FDX.N: ) upgrading of its
quarterly and full-year earnings forecasts, lifted stocks on
Wall Street. (.N: )

FedEx, regarded as an economic bellwether, said more
packages were flowing through both its air and ground
networks.

Prices for safe-haven U.S. government debt slipped, while
the dollar pulled back from session lows against the yen.

Recent data have implied the U.S. economy’s recovery from
its longest and deepest recession since the 1930s slowed in
recent months, but economists do not expect a renewed
downturn.

Ford Motor Co (F.N: ) Chief Executive Alan Mulally told
NBC’s “Today” show that he agreed. “I think that we’re going
to have good, steady growth here,” he said.

For a graphic on June sales of new U.S. homes see:

http://link.reuters.com/fyt59m

ACTIVITY SLOWING DOWN

The government is expected to report on Friday that growth
slowed to a 2.5 percent annual rate in the April-June period
from a 2.7 percent pace in the first three months of the
year.

Moderation in growth was signaled by a measure of national
economic activity released on Monday. The Chicago Federal
Reserve Bank said it’s national activity index fell in June
for the first time since February, dropping to minus 0.63 from
a positive 0.31 in May. A reading above zero indicates the
economy is growing above trend.

Separately, a gauge of factory activity in the Texas
region extended its decline this month, suggesting a pull-back
in manufacturing continued in July. Manufacturing has been the
main engine of growth.

While economists expect weak housing activity to act as a
drag on growth for much of the year, they do not believe this
would be enough on its own to trigger a double-dip recession.

“It’s not going to affect the economy that much. It’s more
the economy affecting the housing market. What we need is for
the economy to start creating jobs,” said Patrick Newport, an
economist at IHS Global Insight in Lexington, Massachusetts.

Data last week showed home construction fell to an
eight-month low in June, while sales of existing home sales
were the lowest in three months.

Housing’s share of the economy has shrunk in recent years
and residential construction accounted for about 2.4 percent
of U.S. gross domestic product in the first quarter.

The impact of a 10 percent drop in home construction has
about one-third the impact now as it did in 2006, according to
economists at Bank of America-Merrill Lynch.

The Commerce report suggested the housing market may be
close to working through the distortions following the end of
a popular home-buyer tax credit in April, an incentive that
brought forward sales.

Last month’s surge in sales saw the supply of new homes
available for sale dropping to 7.6 months’ worth from 9.6
months’ worth in May. The number of new homes on the market
dropped 1.4 percent to 210,000 units, the lowest level since
September 1968.

“Progress is being made in reducing the excess inventory,
which is crucial for the outlook for prices,” said Paul Dales,
a U.S. economist at Capital Economics in Toronto.

“However, new home sales make up just five percent of all
sales. And the post-tax credit fall-off in activity has yet to
fully show up in existing sales. Total home sales have,
therefore, yet to hit rock bottom.”

The median sale price for a new home fell 1.4 percent last
month to $213,400. In the 12 months to June, prices dipped 0.6
percent.

Stock Market Research Tools

CORRECTED – WRAPUP 2-US home sales surge in June, inventory at 42-yr low