msnbc.com staff and news service reports
updated 2/27/2007 6:23:20 PM ET 2007-02-27T23:23:20

Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one-month increase since a 3.3 percent advance in January 2005, a time when housing was roaring toward the peak of its five-year boom.

The median price of an existing home sold in January dropped to $210,600, a decline of 3.1 percent from a year ago. It marked the sixth straight month that the median price has been down compared with a year ago. The January decline was the third-biggest drop in history.

In other economic news, the Conference Board, a private research group, said consumer confidence rose in February to its highest level in more than five years while the Commerce Department reported demand for big-ticket manufactured goods fell by a sharper-than-expected 7.8 percent in January, the biggest drop in three months.

The New York-based Conference Board said its confidence index increased to 112.5 this month, a bigger than expected rise from a February reading of 110.2. The gain reflected increased optimism about jobs and business prospects.

Wall Street ignored the improvement in consumer confidence and the jump in existing home sales to focus instead on a plunge in the Chinese stock market, which had been at record highs. At mid-day, the Dow Jones industrial average was down by more than 170 points.

The concern among investors is that a slowdown in the United States and China, two of the world's fastest growing economies, could result in weaker global growth.

Those concerns were heightened by comments former Federal Reserve Chairman Alan Greenspan made on Monday when he said that a recession at the end of this year was a possibility although not the most likely outcome expected by forecasters.

Most private economists believe that as long as the housing slump does not deepen, the economy should rebound as 2007 goes forward.

"It is temping to say the worst is now behind us, but that would be premature," said Patrick Newport, an economist at Global Insight. He said his forecast was for existing home sales to continue to fall in 2007 but then stage a rebound in 2008.

Analysts said that the decline in home prices was actually an encouraging sign that home sellers are starting to adjust their asking-price down and this should help speed the correction in housing.

"For the last several months I have been hemming and hawing on whether we have reached bottom," said David Lereah, chief economist for the Realtors. He said that he believed sales have now stabilized after hitting a bottom in September.

But Lereah cautioned that the warm weather in December boosted home closings in January, the activity that is tracked in the Realtors report.

By region of the country, sales rose the most in the West, up 5.6 percent, followed by gains of 4.8 percent in the Midwest and 2 percent in the South. Sales in the Northeast were unchanged in January compared to December.

The Commerce Department report said the 7.8 percent drop in durable goods orders was led by an 18 percent plunge in transportation orders, reflecting a big decline in orders for commercial jetliners and continued weakness in auto manufacturing.

Demand for commercial aircraft fell by 60.3 percent after having soared by 31.3 percent the previous month. Boeing Co. took orders for just 13 planes in January after having seen orders soar to 212 in December. Aircraft orders are extremely volatile from month to month.

But there also was weakness in a number of other areas from heavy machinery to computers. Demand for motor vehicles and parts falling by 5.1 percent.

"Growth in the manufacturing sector ground to a halt in September 2006 and continues to struggle as consumers rethink big-ticket spending and businesses turn risk adverse in their capital spending," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

Demand for non-defense capital goods orders fell by a record 19.9 percent in January. This category is closely watched for signals it can send about the plans businesses have to expand and modernize their operations. Business investment has been slowing in recent months.

The Associated Press contributed to this report.

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