Preview: New Home Sales Likely Fell Again in June

In May, the New Home Sales Index fell 2.5% to its second-lowest pace in 17 years, and economists expect another decline in the June report to be released Friday by the U.S. Census Bureau.

The index of sales has fallen in six of the past seven months and currently stands at an annual pace of 512k. The consensus looks for a 1.8% decline to a pace of 503k sales in June, but the range of forecasts varies from a low of 480k to a high of 530k.

"Elevated mortgage rates and ongoing disruptions in non-conforming mortgage markets likely kept sales activity weak in June, as indicated by builders' more pessimistic assessments of buying traffic for the month," said economists from Barclays Capital in a client note.

According to the monthly look at builder confidence from the National Association of Home Builders earlier in the month, homebuilders' pessimism hit a new historic low in the 22-year index.

There's plenty of reason to be pessimistic, as the overhang of supply is 10.9 months at the current sales pace. Economists say until inventories are slashed, there can't be a turnaround in the housing sector.

JPMorgan economists are looking for a 1% decline to a pace of 507k new home sales, which they noted is above the cyclical low, though it would mark a 31% annualized decrease from Q1 to Q2.

"Sustained stress in the financial system and the effect on the availability of mortgages should also further depress home sales," added economists from RDQ Economics, who predict a pace of 500k.

The census report follows the existing home sales report from the National Association of Realtors on Thursday, which fell more than expected to reach a new low in the 9-year index.

After the prior month's new home sales report, senior economics strategist Charmaine Buskas from TD Securities said the "ongoing retrenchment" in the housing sector "will remain a drag on growth at least through 2008 until some signs of turnaround materialize."

By Patrick McGee and edited by Cristina Markham