Sales of New Homes Rise 7.5% in ’85

Sales of new homes jumped 7.5% last year to their highest level since 1979 as the median price of a new home topped $100,000 for the first time, the government reported Friday.

Some 686,000 new single-family homes were sold in 1985, the highest total since 709,000 new houses were sold in 1979, the departments of Commerce and Housing and Urban Development said.

The price paid for those new homes averaged $100,600 last year, a 3.1% increase over the $97,600 average price tag in 1984.

It marked the first year that the average home price has gone above $100,000. For December, home prices hit a monthly record of $108,600, up from $103,900 in November.

Analysts, however, said the price increases are not out of line with overall inflation, noting that consumer prices rose 3.8% last year, a slightly faster clip than the increase in home prices.

The report said home sales rose 1.7% in December to a seasonally adjusted annual rate of 721,000 units following a sharp 11.8% rise in November.

The number of unsold new homes fell to a 5.8-month supply in December, the lowest it has been since August.

Sales of both new and existing homes have been propelled by falling interest rates. Rates for both fixed-rate and adjustable-rate mortgages have dropped by 1.5 percentage points in the past year.

Fixed-rate mortgages are now averaging around 10.75%, with some analysts predicting a decline to 10.25% by summer.

Lyle Gramley, chief economist for the Mortgage Bankers Assn., predicted that favorable mortgage rates would push new-home sales above the 700,000 level this year.

“Housing will be strong, particularly during the first half of the year,” he said. “Individuals are saying to themselves that they haven’t seen mortgage rates like this for seven years and this is leading them to enter the market and make their purchase now.”

The hottest sales region for new homes was the Northeast. New-home sales totaled 109,000 in this region in 1985, a 16% increase over 1984.

Following the Northeast, sales rose fastest in the Midwest, which enjoyed a 9.2% increase with 83,000 units sold last year. Sales were up 7.5% in the West to 172,000 units and up 4.5% in the South, which still accounted for almost half of the new homes sold last year with sales totaling 323,000 units.