WASHINGTON (AP) – Sales of new homes fell in June for the seventh time in the past eight months, but the decline was less than had been expected, raising faint hopes that the nation’s severe housing recession could be approaching a bottom.

The Commerce Department reported Friday that sales of new single-family homes dropped by 0.6 percent last month to a seasonally adjusted annual rate of 530,000 units. That was less than half the decline that had been expected and the May performance was revised up a bit.

Even with the changes, new home sales were down by a sharp 33.2 percent from a year ago, showing how severe the slump in housing has become.

Cause for optimism

But some analysts said they saw cause for optimism that the worst of the decline could be drawing to a close, especially if a sweeping housing rescue package now pending in Congress can slow a flood of foreclosures and spur sales to first-time home buyers.

Analysts noted that not only was the overall decline in June from May less than expected but sales were up in two of the four regions of the country.

Brian Bethune, chief U.S. financial economist at Global Insight, said the numbers gave a “few positive flickers, but the housing market remains extremely fragile.”

Foreclosures still up

The nation is enduring a steep downturn in housing that has pushed the overall economy close to a recession. It has also triggered a severe credit crunch, forcing U.S. financial institutions to cope with billions of dollars of losses from bad mortgage loans.

A separate report Friday showed that the number of households facing the foreclosure process more than doubled in the second quarter compared to a year ago. Nationwide, 739,714 homes received at least one foreclosure-related notice during the quarter, or one in every 171 U.S. households, according to Irvine, Calif.-based RealtyTrac Inc.

Wall Street took a positive view of the housing data with the Dow Jones industrial average up by 7.33 points in afternoon trading.

Investors were also bolstered by some good news about consumers. The Reuters/University of Michigan index of consumer sentiment for the first part of July came in at 61.2, slightly better than the 28-year low of 56.4 hit in June.

Realtors’ report

The National Association of Realtors reported Thursday that sales of existing homes – which make up the bulk of the home sales market – dropped by 2.6 percent in June to a seasonally adjusted annual rate of 4.86 million units, the slowest pace in a decade.

The report on new home sales showed that the median price of a new home sold in June fell by 2 percent compared to a year ago.

Sales were down the most in the South, a drop of 2 percent, with sales falling 0.9 percent in the West. These declines were offset somewhat by sales increases of 5.3 percent in the Northeast and 2.5 percent in the Midwest.

The Commerce Department also reported Friday that orders to factories for big-ticket manufactured goods such as cars, appliances and machinery increased by 0.8 percent in June, the strongest gain in four months and much better than had been expected. But excluding demand for defense equipment, total orders would have been up a much more modest 0.1 percent.

Analysts said that the June performance for durable goods was being propped up by sizable military spending for equipment, reflecting the ongoing wars in Iraq and Afghanistan, and this was offsetting widespread weakness in the rest of the economy. Orders for defense capital goods shot up 15.8 percent in June following a sizable 14.1 percent increase in May.

“With orders excluding defense falling at a 4 percent annualized rate in the second quarter, it is pretty clear manufacturing is hardly thriving,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Private economists believe that sales of both new and existing homes will remain depressed for much of the rest of the year with prices continuing to fall into the spring of next year. The problem is that soaring mortgage defaults are dumping more homes on an already glutted market. That’s causing banks to tighten up on lending standards, making it difficult for potential buyers to qualify for homes.

The House on Wednesday passed a sweeping rescue package designed to halt the slide in home prices by helping more homeowners avoid mortgage defaults. It also provides a new tax break for first-time homebuyers and throws a lifeline to mortgage giants Fannie Mae and Freddie Mac.

The report on factory orders showed that orders for motor vehicles and parts had a slight rebound in June, rising by 1.8 percent, the best showing in nearly a year. But the increase was only a fraction of the big declines in previous months and was not seen as signaling any kind of sustained rebound from U.S. automakers. Ford, General Motors and Chrysler are being battered by soaring energy prices that have caused buyers to turn away from formerly hot sellers such as trucks and sport utility vehicles.

Overall, demand for transportation goods fell by 2.6 percent as the slight increase in auto demand was offset by a big 25.1 percent plunge in orders for commercial aircraft. Demand for military aircraft was also down, falling by 8.6 percent.

Excluding the volatile transportation sector, orders for durable goods – items expected to last at least three years – shot up by 2 percent, the best showing since last December and much better than the 0.2 percent decline that had been expected.

The manufacturing sector has been hurt by the overall slowdown in the economy with industries related to housing and autos particularly hard hit. This has been offset to some extent by continued strong demand for U.S. exports, which have been helped this year by a falling U.S. dollar against many major currencies. A weaker dollar makes U.S. products cheaper on overseas markets.

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