Sales of new homes posted an unexpected gain in July as heavily discounted properties enticed cautious house hunters to become home buyers.

The Commerce Department reported that sales of new single-family homes rose by 2.4 percent last month to a seasonally adjusted annual rate of 515,000 units, the most since April.

But sales in June turned out to be much weaker than the government previously estimated. Sales sank to a pace of just 503,000, the worst showing since September 1991. June's sales were initially reported to have clocked in at a pace of 530,000.

Economists were forecasting sales to drop in July, although they expected the pace to have been around 525,000. Given June's sharp, downward revision, the level of home sales in July turned out to be less than analysts were anticipating.

Even with the over-the-month increase, new-home sales are down a whopping 35.3 percent from last July, underscoring just how much the housing market has eroded.

Home prices also continued to sag.

The average price of a new-home sold in July was $294,600, down 4.1 percent from a year ago. The median home price — where half sell for more and half for less — was $230,700, down 6.3 percent from last year.

Fallout from the housing crisis is one of the biggest problems facing the country. It has figured prominently into the economy's sharp slowdown. Foreclosures have climbed to record highs, financial companies have chalked up multibillion-dollar losses, and home builders have been clobbered.

Earlier this month, Horsham, Pa.-based homebuilder Toll Brothers Inc. reported dismal third-quarter results as its revenue fell 34 percent and its order backlog plunged 52 percent. Atlanta-based Beazer Homes USA Inc. also reported a difficult third quarter, as revenue fell by 40 percent.

Consumers have watched their single-biggest asset slump in value, making them feel less wealthy and less inclined to spend.

A growing number of analysts believe the economy will hit another deep pothole later this year as the bracing effects of the government's tax rebates fades.

The Federal Reserve, however, can't afford to slice interest rates further to bolster the fragile economy out of fears it will worsen inflation. The Fed in June ended its most aggressive rate-cutting campaign in decades. Economists believe the Fed will leave rates alone when it meets next on Sept. 16, as well as through the rest of this year.

Even with the government's housing-rescue package signed into law by President Bush last month, foreclosures are expected to keep rising into next year.

Meanwhile, there's questions about the future ability of mortgage finance giants Fannie Mae and Freddie Mac to supply money for home loans. The two companies have cut back the availability of mortgages as they cope with growing losses from foreclosures. The companies' stocks have been hammered recently as investors become increasingly convinced that a government bailout will be needed.