New home sales improved last month from a 17-year low, and construction cutbacks by builders reduced the glut of properties on the market by the most in almost five decades.

Sales increased 2.4% from June, to an annual rate of 515,000 that was lower than anticipated, the Commerce Department said in a report issued Tuesday. The revised June rate was 503,000.

The number of unsold homes on the market fell 5.2%, the biggest drop since November 1963, to an annual rate of 416,000.

Lower prices have made homes more affordable for Americans still able to obtain a mortgage, stemming the slide in demand and making it more likely the property glut will clear. A more stable housing market would eliminate one of the biggest risks to the economy while the credit crisis and job losses threaten growth.

"We're hopefully getting in the vicinity of a bottom," David Resler, chief U.S. economist at Nomura Securities International Inc. in New York, said before the report was issued.

Still, "we're a long way from a recovery," Mr. Resler said. "We'll see activity at low levels for a while."

The median price of a new home decreased 6.3%, to $230,700 from $246,200 a year earlier.

Another report issued Tuesday showed the drop in home prices slowed in the second quarter, signaling that the market may be starting to stabilize.

Home values declined 2.3% from the first quarter, according to Standard & Poor's/Case-Shiller index. In the first quarter they declined 6.8% drop from the fourth quarter.

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