Sales of new homes in America dropped more than forecast in August and prices plunged by the most since 1970, underscoring the Federal Reserve’s concern about the broader economy.

Purchases declined 8.3% to an annual pace of 795,000, the lowest level in more than seven years, the Commerce Department said yesterday. The median price dropped 7.5% from a year ago.

The figures suggest home construction will extend its deepest slump since 1991, and consumers will have less home equity to tap for spending. The chief executive officer of Fannie Mae, Daniel Mudd, said in an interview yesterday that the industry won’t hit a bottom until the end of next year, echoing comments by KB Home, the builder that hours earlier reported a third-quarter loss.

“The housing market is not looking good for the months ahead,” the chief economist at National City Corp. in Cleveland, Richard DeKaser, said. “We’re likely to see an intensification of the impact housing has on growth.”

Economists forecast sales would fall to an 825,000 pace from a previously reported 870,000 in July, based on the median estimate of forecasts in a Bloomberg News survey. Compared with a year earlier, purchases were down 21%.

The severity of the slump poses a risk that housing woes will spill over into the broader economy. The former secretary of the Treasury, Lawrence Summers, said there is nearly an even chance America will fall into recession after almost six years of growth.

The chance of a contraction “is not quite 50%, but somewhere in that neighborhood,” Mr. Summers, now a professor at Harvard University in Cambridge, Mass., said in an interview yesterday.

The economy grew in the second quarter at a revised 3.8% annual pace, the most in more than a year, a separate Commerce Department report today showed. The gain compares with a previous estimate of between a 4% and a 0.6% increase in the first three months of the year. The figures didn’t reflect last month’s credit-market turmoil, which heightened concern the expansion might be cut short. In another report, the number of workers filing first-time jobless claims unexpectedly fell last week to a four-month low of 298,000. The Labor Department figures may help allay concerns about a weakening labor market.

“The jobs environment has up until now been better than people think, but I think it’s going to get weaker from here,” the chief economist at Bear Stearns & Co. in New York, David Malpass, said in an interview.

Treasury notes rose after the housing report, and later extended gains. The yield on the benchmark 10-year note dropped to 4.57% at 2:21 p.m. in New York, from 4.62% late yesterday. Stocks were little changed, with the Dow Jones Industrial Average at 13,898.2, up 20 points.

The number of homes for sale at the end of the month fell 1.5% to 529,000. The inventory of unsold homes jumped to 8.2 months at the current sales pace.

The number of properties completed and waiting to be sold rose by 2,000 to 180,000.

“We don’t think we hit a bottom until the end of ’08 and then we have some period of time to work our way back up again,” Mr. Mudd said.