Existing-Home Sales Fall to 17-Month Low; Mortgage Rates Cited

Rising mortgage interest rates pushed sales of existing homes in August to their lowest level in 17 months, and analysts expect the pace to slow further, the National Assn. of Realtors reported Friday.

The industry group said sales of existing homes dropped 0.9% last month to a seasonally adjusted annual rate of 3.40 million units from 3.43 million in July. Resales of homes in July fell 2%.

The 3.77 million units sold in May was the highest level so far this year.

It was the third consecutive monthly decline and the slowest sales pace since March, 1986, when existing homes sold at a rate of 3.24 million. August sales were 16.3% lower than December, when the resale rate hit a nine-year high of 4.06 million.

Matter of Timing

“Unfortunately, we think the trend for the housing sector in general is going to be for reduced levels of activity through the remainder of this year and through 1988 as interest rates rise,” said Richard Peach, senior economist for the Mortgage Bankers Assn. of America.

Analysts cautioned that the August resale figures do not reflect the jump in interest rates over the past month. The Federal Reserve on Sept. 4 increased the discount rate to 6% from 5.5%, driving up banks’ cost of funds.

“Just when the market had recovered somewhat from last spring’s rate jump, the Fed raised the discount rate, and mortgage rates took off again,” said William M. Moore, president of the realtors association.

“Some buyers, including people who bought in August, were lucky enough to make a purchase during the past couple of months, in between rate hikes,” he said.

Further Increases Expected

“Interest rates are going up higher,” agreed David Wyss, senior economist for Data Resources, a Lexington, Mass., forecasting firm. “As a result, home sales are likely to be soft for the rest of the year” and through the spring.

According to the Federal Home Loan Mortgage Corp., the average rate for 30-year, fixed-rate mortgages moved from a nine-year low of 9.07% in March to 10.81% in May. It eased back to 10.23% by late July, but began climbing again and hit a 21-month high of 11.02% on Friday.

Wyss predicted that mortgage rates would rise through the first quarter of next year, peaking between 11.25% and 11.5%.

The median price for an existing, single-family home fell to $85,400 in August from $86,200 in July, the realtors said.