Sales of New Homes Jump 8.4% in June

Sales of new homes surged 8.4% in June as rising mortgage rates spurred the biggest increase in sales in four months, the government reported Tuesday.

The Commerce Department said sales of new single-family homes climbed to a seasonally adjusted annual rate of 734,000 units in June, the highest sales level since February, 1987.

The June increase followed a revised 0.6% decline in home sales in May and was the biggest one-month advance since an 11.9% sale rise in February. The government also revised upward the level of sales for March, April and May, showing more strength in the residential market than previously believed.

Analysts said these developments were encouraging signs, but they cautioned against too much optimism, primarily because of a belief that mortgage rates are headed higher.

“Demand is still there as long as interest rates can stay at a reasonable level,” said Kent Colton, executive vice president of the National Assn. of Realtors. “But we are concerned that for the rest of the year, the pressure on rates will be upward. That means that this is probably the peak as far as sales are concerned.”

Richard Peach, an economist with the Mortgage Bankers Assn., said part of the sales push in June came from attempts by home buyers to close deals before rates went higher.

Increase Expected

Peach noted that the Federal Reserve boosted interest rates twice in May and once in June in highly publicized moves to dampen inflationary pressures.

Fixed-rate mortgages now stand at 10.5% on average. James Christian, chief economist for the U.S. League of Savings Institutions, predicted that they would hit 11% by the end of the year.

But even with the continued rise in rates, Christian predicted that new home sales would total 650,000 units this year, down only 3% from the 1987 pace.

“The upward revisions in sales back through March indicate the housing market was doing pretty well through the spring,” he said. “People have confidence that the economy will remain strong and they don’t have to worry about going out and making a commitment to buy a home.”

Prices of new homes were up sharply in June, with the median price at $117,800, up $7,800 from May. The median price means half the homes sold for more and half for less.

Regions Vary Widely

The average price of a home was up as well, climbing 5.7% to $141,200.

Analysts said much of the price increase reflected the geographic composition of the sales increase. Sales were up sharply in the Northeast and West, the two regions with the highest home prices.