New Home Sales Jump 27.4% in March, Set Record

New home sales soared 27.4% in March to the highest level in history, the Commerce Department reported Tuesday, as the housing industry continued to outperform all other segments of the economy.

The sales stampede was ignited by the lowest mortgage rates of this decade, and analysts said rates could fall even lower in coming weeks, helping boost sales during the crucial spring buying season.

The Commerce Department report said new single-family homes were sold at a seasonally adjusted annual rate of 903,000 units last month, the highest rate since the government began publishing monthly sales statistics in 1963.

The 27.4% February-to-March increase in sales was the biggest percentage advance in more than two decades as well, surpassed only by a 31% rise in April, 1963.

The revised February level was 3.7% below the January level of 736,000. The annual rate of home sales has increased 23.9% since the end of last year, when it was 729,000 after seasonal adjustment.

The housing boom is attributed to the sharp decline in mortgage rates this year. Fixed-rate mortgages are now averaging 9.86%, their lowest level since October, 1978, and down more than 3 percentage points from a year ago.

“Nobody in the country was predicting interest rates would decline as much as they did,” said Michael Sumichrast, chief economist of the National Assn. of Home Builders. Sumichrast said his monthly survey of builder expectations found developers with the highest sales expectations in nine years.

“We are going to have a very, very good sales year,” he said. “We have a lot of very happy people.”

Other economists said housing is outperforming all other segments of the economy because the stimulative impact of lower interest rates has not been felt in other areas.

Glenn Crellin, economist for the National Assn. of Realtors, said he expected that mortgage rates will drop another one-fourth to one-half percentage point. He predicted that the lower rates would help boost new home sales for the entire year to 735,000 units, up almost 7% from last year, with an even bigger 10% rise in existing homes.

“With interest rates at seven-year lows, families are finding affordability conditions ideal for purchasing their first home or moving up to a larger, more expensive home,” he said.

The big sales increase in March came as home prices were holding fairly steady. The average sales price rose 3.6% to $110,400, but the median price actually fell by 1.2% to $88,300. The median price means half of the homes sold for more and half for less.

The big jump in sales included a 39.2% surge in sales in the South, which put sales at an annual rate of 419,000 units, the highest level since December, 1983. Sales rose 28.1% in the Northeast to a record 164,000-unit rate.

Sales were up 16.9% in the West to an annual rate of 235,000, the highest level since September, 1979, while sales were up 6.3% in the Midwest to 84,000 units.

At the end of March, there were 333,000 new homes for sale. The big surge in sales left the inventory of unsold homes at 4.6 months, meaning that it would take that long to exhaust the backlog of unsold homes at the March sales pace. This was the lowest level since July, 1971.

The national average commitment rate for 80% 30-year mortgages fell to 9.92% last week, according to the Federal Home Loan Mortgage Corp. The average commitment rate for adjustable-rate mortgages was 8.5%, down from 8.61% in the previous week.

Housing starts slipped back in March to 1.95 million at an annual rate, but the annual pace of ground-breaking in the first quarter of this year--nearly 2 million homes--was faster than it has been since 1978, according to a separate Census Bureau report released earlier this month.