By Gregory Robb, CBS Marketwatch.com
July 27, 2004

WASHINGTON (CBS.MW) -- Sales of U.S. new homes fell only slightly in June from the record pace set the previous month, the Commerce Department estimated Tuesday.

Sales of new homes fell 0.8 percent in June to a seasonally adjusted, annualized rate of 1.33 million. See full report.

The decline was not as sharp as expected. Economists surveyed by CBS MarketWatch were expecting a sales rate of about 1.27 million in June. See Full Story.

The government revised lower its estimate for sales in May, but it was still an all-time high. Sales in May rose a revised 11.7 percent to 1.34 million units, compared with the initial estimate of a 14.8 percent rise to 1.37 million units.

Economists attribute some of the strength in new home sales to "fence-sitters" who are entering the market as interest rates rise out of concern that they would unable to afford a home if rates rise further.

The key question is what will happen when this trend subsides.

"Sales cannot remain at this pace for long, though a serious downturn is unlikely to begin until mortgage rates climb appreciably," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

On Monday, the National Association of Realtors said sales of existing homes rose to record highs in June, increasing 2.1 percent to a seasonally adjusted annual pace of 6.95 million units. See full story.

Industry experts say that conditions for the nation's housing sector remain favorable, as the economy is adding jobs and consumer confidence remains high. Earlier Tuesday, the Conference Board reported that consumer confidence hit a two-year high in July. Read our story.

The inventory of new homes remained lean in June, the Commerce Department said. The number of new homes on the market for sale fell about 0.5 percent to 374,000, representing 3.4 months of sales based on the June pace.

New-home sales fell last month in every region but the South, where sales rose about 9.6 percent to a record 696,000.

Sales fell about 14.2 percent in the Northeast to 91,000. Sales in the West dropped about 13.1 percent to 338,000, while sales fell about 2.9 percent to 201,000 in the Midwest.

The monthly figures are subject to revisions and to large sampling and other statistical errors. The government cautions that it can take five months for a trend in home sales to be established.

Also for June, the median sales price rose 11.7 percent on a year-over-year basis to $209,900.

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