Both new and existing home sales numbers were released last week, but the totals suggest a disappointing spring market that is unlikely to be made up in the summer, particularly with expensive gas prices and higher mortgage interest rates looming.

According to the National Association of Home Builders, sales of new U.S. homes surged in April, ending months of declines. Sales rose by 16 percent to a seasonally adjusted annual rate of 981,000, reported the Commerce Department, which exceeds the 865,000 number that was widely anticipated.

What caused the positive report? Prices crashed in April, down 10.9 percent over last year, to a median price of $229,100. Builders discounted like crazy to move standing inventory, and stepped up in-house mortgage loan incentives to compete with the tightening broader lending market. The NAHB also reported that buyers are gravitating "toward lower-priced homes to counter their affordability problems."

Regionally, new-home sales were up 27.8 percent in the South, 3.8 percent in the Northeast and 8.5 percent in the West for the month. Sales were down by 4.0 percent in the Midwest.

In his economic report, NAHB's chief economist David Seiders wrote, "Key indicators of home buyer demand have continued to weaken, under the pressure of the evolving tightening of mortgage lending standards as well as flagging confidence among prospective buyers about the prospects for house prices. NAHB’s surveys document a broadening pattern of house price adjustments as well as more intensive use of non-price sales incentives as builders strive to support sales and hold down sales cancellations."

Putting the numbers into perspective, last year, the NAHB members sold 1,097,000 seasonally adjusted homes in April. This April, the supply is 6.5 months on hand, an improvement over March's 8.1-month supply on hand. Thirty-three percent of completed home inventory was sold, while units still under construction represented 51 percent of the inventory and units for-sale that were permitted but not yet started represented almost 16 percent of the inventory level. The median length of time that completed homes were on the market was 6.0 months in April, says the NAHB.

But the pace of sale is the fourth consecutive month below the benchmark one-million pace, a cause for concern that the worst isn't over, and hope that the pricing correction has hit bottom.

One news report calculated that the new home price is down 11.1 from March 2007 making it the biggest month-to-month drop in sales prices on record, and the sharpest year-over-year drop since December 1970.

"We’re viewing the large jump in new-home sales for April with a lot of caution, in view of the large month-to-month volatility historically displayed by these statistics," said Seiders. "In addition, the April bulge may very well have reflected favorable weather swings, particularly in the South region. It also appears that the aggressive sales techniques being employed by builders are now showing some success, despite the subprime-related difficulties in the mortgage market." 

"The first quarter may well have marked the low point for sales volume in the dramatic housing correction that began in the latter part of 2005. We are currently looking for a gradual recovery process going forward, at least on a quarterly basis," Seiders said. 

Meanwhile, sales of existing homes, as reported by the National Association of Realtors, declined to a four-year low by 2.6 percent to a seasonally adjusted annual rate of 5.99 million units in April from an upwardly revised level of 6.15 million in March. This is 10.7 percent lower than the 6.71 million-unit pace in April 2006. Worse, housing inventories rose 10.4 percent to 4.20 million homes for sale. That's an 8.4-month supply, the largest on hand in 15 years.

Lawrence Yun, NAR senior economist, says he isn’t surprised, and echoes the NAHB's reasoning that the elimination of many subprime loans and lenders have impacted the market.

"We’ve been anticipating slower home sales because many subprime loan products are no longer available," he said. "In addition, increased scrutiny by lenders is stopping risky mortgage origination, which is good for both consumers and the lending community. Fortunately, a wide availability of conventional mortgage products and the 4.5 million jobs created over the past 24 months will help to stabilize the market going forward."

The national median existing-home price for all housing types was $220,900 in April, down 0.8 percent from April 2006 when the median was $222,600. Typically, the margin between new homes and existing homes is much greater, at least $20,000 or more.

That's good news for home sellers, as long as low mortgage interest rates are supporting the market but that could change if buyers balk at higher interest rates. This week, interest rates based on a 30-year fixed-rate conventional mortgage jumped to 6.37 percent from 6.18 percent, reported Freddie Mac.

And there are other factors to consider. Jobless claims are up for the first time in six weeks. While that doesn't spell a trend, the change in momentum is worth noting. In addition, consumer sentiment may slip further on record high gas prices, eclipsing the inflation-adjusted top price for gas reached in 1981.