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Thursday, May 25, 2006 - Page updated at 12:00 AM

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New-home sales show surprising strength in April

MarketWatch

WASHINGTON — Sales of new U.S. homes surprised economists and stayed strong in April, rising 4.9 percent to a seasonally adjusted annual rate of 1.2 million — the highest level of the year, the Commerce Department reported Wednesday.

Economists surveyed by MarketWatch had been expecting the pace of new-home sales to cool to 1.15 million units, as part of a general slowdown under way in the housing sector.

Economists cautioned against reading too much into the rise in April, but said the report fits in with the Federal Reserve's expectation of an orderly decline in the market.

This is the second straight monthly gain in new-home sales after sales fell in the first two months of the year. Sales are down 5.7 percent year over year.

The number of new homes on the market rose 2.4 percent in April to 565,000 units, representing a 5.8-month supply at the current sales pace. This is down from a six-month supply in March.

March's new-home sales were revised lower by the Commerce Department to 1.142 million from 1.213 million.

The median price of a new home rose 2.8 percent in April to $238,500 compared with the previous month. Median prices are up just 0.9 percent in the past year.

"The fact that inventories are rising and so are prices suggests that home builders are continuing to see demand," said Drew Matus, economist at Lehman Brothers.

Stronger growth could force the Fed to continue to raise interest rates, despite the desire from some Fed officials to pause and allow the economic outlook to become clearer. The Fed has increased its key interest rate at 16 straight meetings.

The government cautions that its housing data are subject to large sampling and other statistical errors. It can take up to six months for a trend in sales to emerge. New-home sales have averaged 1.17 million per month over the past six months, down from 1.2 million per month in the six-month period ended in March.

In a separate report, the government said orders for durable goods decreased by a sharper-than-expected 4.8 percent in April.

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