Builders got a bit of good news today when the Commerce Department reported that new home sales jumped 2.8 percent in July, reversing by about two-thirds the 4 percent decline in June.

The Commerce Department said new home sales were at a seasonally adjusted rate of 870,000, up from the revised June rate of 846,000. Sales were up 22.4 percent in the West, flat in both the Midwest and South, and declined 24.3 percent in the Northeast.

"While we can rejoice in the positive numbers, there are still some bumpy roads ahead," said Bernard Markstein, senior economist and director of forecasting at the NAHB.

Markstein said the trade group has been seeing some month-to-month volatility in local markets that don't qualify as trends. Overall, Markstein said the home building market has yet to bottom out.

"We've yet to see the total fallout from the financial markets from all the problems with subprime loans," said Markstein. "Builders should expect tighter lending and credit standards, which will make it tougher for people to qualify for a mortgage, putting a further drag on the housing market," he said.

Global Insight U.S. economist Brian Bethune generally agreed with Markstein's assessment, saying that the housing market remains on a downward trend and is expected to be a drag on the economy through 2008.

"Given the high rate of sales cancellations that home builders have experienced in recent months, it's difficult to get a line of sight to the net sales rates," said Bethune. "I suspect that the net sales rates are not as strong as the July numbers would suggest," he concluded.