New home sales surprise in July

WASHINGTON -- New-home sales turned up and factory orders soared in July, suggesting the economy was on stable footing before a credit crunch took a turn for the worse.

The Commerce Department reported Friday sales of new homes rose 2.8 percent to a seasonally adjusted annual rate of 870,000 units. The increase came after a 4 percent drop in June.

Another report from the department showed orders placed with factories for big-ticket goods jumped 5.9 percent in July, the most in 10 months.

The latest batch of economic news was better than analysts had expected. They were forecasting home sales to fall and calling for a much smaller, 1-percent gain in factory orders.

The housing report showing the July sales boost comes as credit standards have been tightening on home mortgages. Credit problems took a turn for the worse in August, making it even harder for some buyers to get financing. That means home sales in the coming months will likely show renewed weakness, economists said.

Home prices were mixed. The median price of a new home was $239,500 in July, up 0.6 percent from last year. The median price is the point where half sold for more and half sold for less. The average home price, however, dropped to $300,800 in July, down 3.4 percent from same month last year.

In the manufacturing report, gains were widespread, indicating that capital spending, a key ingredient of a healthy economy, had gained momentum. Orders increased for machinery, automobiles, metal products, airplanes and communications equipment.

The Federal Reserve did not conduct any open market operations on Friday, only the second day it refrained from pumping money into the financial system since a credit crunch began two weeks ago.