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New Home Sales Rose in July, But Outlook Remains Grim

Sales of new U.S. homes unexpectedly rose 2.8% to an 870,000 annual sales pace in July, reversing two months of declines, and inventories eased, a Commerce Department report showed Friday.

Analysts were expecting new-home sales to fall 1.4% to an 820,000 sales pace. New-home sales in June were revised to an annual rate of 846,000 from the previously reported 834,000 rate.

Despite the surprising strength, some economists said the housing outlook remains grim.

"This is July, before the freezing of the market," Mark Zandi of Moody's Economy.com said on CNBC. "So I'm sure we're going to see much weaker numbers for August, September and October. The housing market is going to go down a whole other level in the next few months."

Still, Zandi said the market is nearing a bottom.

"In terms of sales, I think the bottom is going to be the end of this year," he said. "In terms of contruction, I don't think there'll be a bottom 'til the beginning of 2008. And in terms of prices, I think it won't be until the end of '08. And that's nationally. Of course, in California and Florida--the markets that are in disarray--the bottom is well into 2009."

Meanwhile, homeowners across America were more likely to report declines in their home values than at any time since 1992, according to the The Reuters/University of Michigan Surveys of Consumers for August released on Friday.

Nearly one-in-four consumers in the August survey reported that the value of their home had declined during the past year, said Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers in a statement.

Some 18% of respondents expected their home's value to decline in the year ahead, Curtin said. Owners who suffered the biggest declines in the past year expect even steeper price drops during the year ahead.

The slump in home prices was deeper among homeowners living in the West and Northeast, with the sharpest declines experienced and expected by owners of more expensive homes, Curtin said.

The data indicated housing wealth will provide less support for consumer spending as tighter lending standards and higher borrowing costs curtail cash-out refinancing during the year ahead. Though the survey indicates a significant slowdown in consumer spending, it will stop short of a recessionary downturn, Curtin said.

Among homeowners in the West, 33 percent reported in the August survey that the value of their home declined. That compared with 23 percent of homeowners in the Northeast, 18 percent in the Midwest reporting declines, and 15 percent in the South.

Some 21% of West and Northeast homeowners expected declines during the year ahead, with just 10% of Southerners expecting a decline in value.

Southerners were also the most optimistic about appreciation of their homes over the coming year and five years, Curtin said, citing the survey.

Declines in home values were most frequently reported by owners of the most expensive homes. Among homeowners with homes valued in the top third of all homes, worth $300,000 or more, 28 percent reported declines in the value of their homes, twice the number of those whose homes were valued below $150,000.

More owners of homes in the top price bracket also said they expected declines in the value of their home during the year ahead.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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