updated 4/25/2007 11:43:59 AM ET 2007-04-25T15:43:59

Sales of new homes rebounded slightly in March, helped by better weather, but the gain was not enough to offset big declines in the previous two months.

The Commerce Department reported Wednesday that new home sales rose 2.6 percent in March compared with February, when new home sales had plunged to the lowest level in nearly seven years. New homes were sold at a seasonally adjusted annual rate of 858,000 units in March.

The March improvement was just half what analysts had expected and still left the sales pace 23.5 percent lower than a year ago as the housing industry continues to go through a painful adjustment after an extended boom period.

The report on new home sales followed a report Tuesday that sales of existing homes, by far the larger part of the sales market, had fallen 8.4 percent in March, the biggest decline in 18 years.

The slump in housing, which began last year, has been a significant drag on economic growth. Analysts expect that to continue as rising mortgage foreclosures dump more homes onto the market and cause lenders to toughen their standards, making it harder for prospective buyers to qualify for loans.

In other economic news, the Commerce Department said Wednesday that orders to U.S. factories for big-ticket manufactured goods rose 3.4 percent in March, the fastest clip in three months, helped by the biggest jump in orders by businesses to expand and modernize in 2½ years.

The housing report showed that the rise in sales activity helped to lift prices, with the median sales price increasing to $254,000, a gain of 6.4 percent compared to the same period a year ago.

Analysts said the rise in home sales reflected better-than-normal weather in March following serious winter storms in January and February.

The biggest increase was a 50 percent rise in sales in the Northeast followed by an increase of 9.8 percent in the Midwest, two regions which had been slammed by winter storms in February. Sales fell 2.7 percent in the South and were down 0.9 percent in the West.

Much of the strength in orders for durable goods came from a 37.6 percent surge in demand for commercial aircraft. However, orders for business capital goods excluding aircraft also posted a strong gain of 4.7 percent.

That was the best showing for this closely watched category of business investment since a 7.9 percent rise in September 2004. The rebound came after two consecutive monthly declines had increased worries that troubles in housing and auto manufacturing were beginning to cause other businesses to grow more pessimistic about the future.

Still, analysts said that the orders rebound did not change their view that manufacturing remained under pressure from the slowing economy.

“The significant bounce back in business equipment spending evidenced in the durable goods report is more a function of the volatility inherent in these data than a clear sign that business confidence in the economy has stabilized enough to allow capital spending to resume a healthy growth trajectory after weakening considerably in the latter months of 2006,” said Cliff Waldman, Economist for the Manufacturers Alliance/MAPI.

The 3.4 percent rise in durable goods orders pushed demand up to $214.9 billion in March following a 2.4 percent increase in February, which was previously reported as a weaker 1.7 percent rise.

Manufacturing has endured a slowdown in recent months, reflecting the slowdown in the overall economy.

Many economists believe the economy slowed to an annual growth rate of just 1.8 percent in the first three months of this year, which would be the weakest showing since the end of 2005 when the country was struggling to cope with the devastation from Hurricane Katrina. The government will release its first look at growth in the gross domestic product for the January-March period on Friday.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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