WRAPUP 3-US home sales surge in June, inventory at 42-yr low

* 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
(Updates to close of U.S. markets, adds house prices survey)

By Lucia Mutikani

WASHINGTON, July 26 (BestGrowthStock) – Sales of new U.S. homes
rebounded strongly in June from May’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 in Monday’s report left in place a picture of a weak
housing market and perceptions that economic growth moderated
somewhat in the second quarter.

Sales of new single-family homes 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 as the U.S. housing market was roiled by the expiry of a
popular tax credit that boosted sales. 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.

New home sales account for only a fraction of the total
U.S housing market.

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

Each of the three major U.S. stock indexes gained 1
percent for the day, with the Standard & Poor’s 500 (.SPX: ) at
1,115.01 — just a fraction of a point shy of the break-even
point for the year. The Dow Jones industrial average (.DJI: ) is
back in the black for the year. The Nasdaq (.IXIC: ), which
edged back into positive territory for the year on Friday, is
now up 1.2 percent for 2010 so far.

Safe-haven U.S. government debt eked out slim gains, while
the dollar fell broadly.

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

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 said he
agreed, telling NBC’s “Today” show: “I think that we’re going
to have good, steady growth here.”

ACTIVITY SLOWING DOWN

The government is expected to report on Friday that growth
in gross domestic product 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 its 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 pullback
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 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 5 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, the smallest drop since November 1987.

House price have stabilized on a year-ago basis.

The Standard & Poor’s/Case-Shiller 20-city home price
index likely increased 4.0 percent year-over-year in May
following a 3.8 percent rise in April, according to a Reuters
survey. The report is due on Tuesday.
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For a graphic on June sales of new U.S. homes see:

http://link.reuters.com/fyt59m
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Stock Market Research

(Editing by Jan Paschal)

WRAPUP 3-US home sales surge in June, inventory at 42-yr low