Home-Sales Data Paint Fuzzy Picture

The price drop is either a signal that homebuilders are lowering prices to move product, or that lower-priced homes are accounting for a larger portion of all sales.

One real estate hedge fund manager who invests in the sector says the pricing issue is more important than the actual sales number.

"The monthly sales number is rendering itself irrelevant for now. It's very, very choppy data," says the manager, who remains bearish on housing. "The more relevant issue is that prices are coming down, and you don't know what incentives were given (by builders)."

Shares of homebuilders initially surged on the home-sales data, but later gave back some of those gains.

Pulte Homes (PHM Quote) was up 49 cents, or 1.8%, to $27.67; D.R. Horton (DHI Quote) was down 3 cents, or 0.1%, to $23.60; and Lennar (LEN Quote) fell 12 cents, or 0.3%, to $46.02.

Toll Brothers shares were up 33 cents, or 1.1%, to $30.10. The builder reported a 79% plunge in second-quarter earnings earlier Thursday, and also declined to give a full-year profit forecast because of the uncertain market.

On the conference call, CEO Bob Toll said he was surprised by Treasury Secretary Henry Paulson's recent comments that the hard times are mostly over for the U.S. housing market.

"I wondered how many communities he had and where he got that information," Toll told investors on the call. "We have not got the bad times behind us yet."

Referring to the government's new-home sales data, Toll told investors on the call that the monthly comparison looks good, "but what you're comparing to stinks. That's why you're getting unhappiness expressed by the public homebuilders."

York, the economic analyst from Wachovia, also says he's not ready to call a bottom to the housing decline.

"Things are looking more positive than we would have said they were two months ago," he says. "We expect some moderate pullback next month. We don't want to say everything is great from here. It may signal that the bottom is closer."