The Commerce Department reported Oct. 25 that sales of new homes rose by 4.8 percent last month to a seasonally adjusted annual rate of 770,000 units. That level of activity was still 23.3 percent below a year ago, indicating that housing remains in a steep downturn.

 

Analysts had been expecting that sales would fall by 2.5 percent last month from an August sales pace that had originally been reported as 795,000 homes.

However, that figure was revised sharply lower in the new report to show a sales rate of just 735,000 in August, the slowest sales pace in 11 years.

 

The report on home sales showed that the median new home price in September — the point where half the homes sold for more and half for less — rose to $238,000, up 2.5 percent from August, which had seen prices fall to the lowest level in nearly a year.

 

The rebound in home sales was led by a 37.7 percent surge in the West. Sales were also up 0.5 percent in the South. But sales of new homes fell by 19.5 percent in the Midwest and 6.6 percent in the Northeast.

 

Several other reports showed economic weakness, including continued steep slides in sales of existing homes and reports from banks and investment houses that they were having to take big write-offs due to losses in such areas as mortgage-backed securities.

 

Losses that began in investments on subprime mortgages, where deliquency rates are soaring, had caused a severe credit crunch in August as the market for many kinds of investments nearly dried up.

 

The concern is that if the economic disruptions become serious enough, they could drag down overall economic growth, which has already slowed under the impact of the steep downturn in housing.

 

Many analysts, however, believe the economy will still be able to avoid an outright recession because the Federal Reserve, which cut a key interest rate for the first time in four years, will keep cutting rates to stimulate economic growth.

In a new report released Oct. 25, the congressional Joint Economic Committee estimated that 2 million subprime mortgages could go into foreclosure over the next 18 months as initially low introductory rates reset at much higher levels. The JEC report said that states will lose $917 million in property tax revenue as housing values are depressed by the wave of foreclosures.

 

“State by state, the economic costs from the subprime debacle are shockingly high,” Sen. Charles Schumer, chairman of the JEC said in a statement. “From New York to California, we are headed for billions in lost wealth, property values and tax revenues.”

 

Schumer called on the Bush administration to more aggressively help families find ways to avoid going into default on their home loans.