Inventories of unsold homes rose to an 11-year high, while median prices flattened out.

New-home sales are down 21.6% in the past year. So far this year, sales are down 14.2% to 682,000 from 796,000 at this time last year.

July sales pace was the lowest since February's 1.038 million annual pace. July's sales were weaker than the 1.10 million expected by economists surveyed by MarketWatch.

Inventories of unsold homes rose 1.1% to a record 568,000 in July, representing a 6.5-month supply at the July sales rate. That's the largest months' supply since November 1995.

All of the increase in inventories came in completed homes. About 18% of homes for sale have not yet begun construction.

Inventories are up 22.4% in the past year.

Builders have said they are cutting prices and offering incentives to boost sales to keep inventories from building up.

The median sales price in July was up 0.3% year-over-year to $230,000.

The report confirms a dramatic decline in real estate in July. The Federal Reserve will be keeping a close eye on the impact of the housing bust on the rest of the economy as it tries to steer the economy between recession and inflation.

On Wednesday, the National Association of Realtors said sales of existing homes fell about 4.1% to a seasonally adjusted annual rate of 6.33 million, while inventories rose to 13-year high and year-over-year price appreciation was flat. Prices were up just 0.9% in the past year.

Builders' sentiment has collapsed in the past year, housing starts are down, and major builders have reduced their forecasts for construction for this year and next.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.

The standard error is so high, in fact, that the government cannot be sure new-homes sales decreased at all in June. The 4.3% decline in July is statistically meaningless.

It can take up to six months for a trend in sales to emerge. New-home sales have averaged 1.10 million per month over the past six months, down from 1.12 million in the six-month period ending in June. The six-month sales average has fallen eight months in a row; it was 1.29 million in December.

Regionally in July, sales fell 21.3% in the Midwest and fell 8% in the South. Sales rose 11.7% in the West and 1.8% in the Northeast. In the past year, sales are down 42.9% in the Northeast, 35.4% in the Midwest, 23.4% in the West and 12.4% in the South.