Sales of new homes up, well below healthy market levels

Sales of new homes were up in April for the second straight month, beating expectations but still remaining below levels reflecting a healthy market. 

Purchases were up 7.3 percent last month to 323,000, up from a revised 301,000 in March but 23.1 percent below the April 2010 estimate of 420,000, the Commerce Department said Tuesday. 

The market needs to nearly double sales -- to about 700,000 units -- to return to healthy pre-recession levels. 

With a glut of foreclosed, less expensive homes on the market, potential buyers have little incentive to purchase a new house instead of a cheaper, previously owned home. 

The median sales price of new houses was $217,900, up 2 percent from March, while the average sales price was $268,900. Prices for new homes are more than 30 percent higher the median price of existing homes. 

Home prices are down by 31 percent from their pre-recession peak in July 2006, according to the S&P/Case-Shiller Home Price Index. After a pause last year, prices fell again in the first quarter of 2011. Some housing market experts have said they expect prices to hit rock bottom this spring as the market continues to deal with rising foreclosures. 

The seasonally adjusted estimate of new houses for sale at the end of April was 175,000, about 6.5 months worth at the current sales pace.

A separate survey released Tuesday shows that homeownership is still enticing, including to those who are renting.

Among adults who rent, 81 percent would like to buy a house at some point in the future, while only 17 percent say they would prefer to continue to rent, according to a nationwide Pew Research Center survey of 2,142 adults conducted from March 15-29.

This is in spite of the fact that 31 percent of renters are less likely than homeowners (41%) to strongly agree that purchasing a home is the best long-term investment a person can make.

Most renters rent as a result of circumstances with 75 percent saying that they cannot afford to own a home right now, while 24 percent say that they could buy a home but choose to rent instead. 

The five-year drop in home prices hasn't shaken the confidence of those who see homeownership as a good investment, with 81 percent of adults saying that a home purchase is the best long-term investment.