Fixed-Rate Mortgages Lowest Since Spring : Sales of New Homes Plunge 7.8%
Sales of new homes suffered their steepest plunge in more than a year in September, a 7.8% decline that analysts blamed in part on the slowing economy.
While new home sales fell, fixed mortgage rates have declined to their lowest level since spring, with some big lenders offering conventional 30-year loans at single-digit rates again. However, some economists warned that the loose credit won’t last.
The Commerce Department said sales of new single-family homes dropped to a seasonally adjusted annual rate of 659,000 units in September, down from an August sales pace of 715,000 units.
It was only the third sales decline this year and the biggest monthly setback since a 10.9% drop in May, 1987.
Analysts said the decline had been expected, given that overall economic growth is slowing in the second half of the year. Sales of existing homes also fell during September, dropping 2.2% to an annual rate of 3.63 million units.
Economists said both new and existing home sales had been bolstered in previous months by fears among potential buyers that interest rates would continue rising.
“There was a lot of anticipatory buying going on in June, July and August because of people’s expectations that interest rates would keep on rising,” said Richard Peach, an economist with the Mortgage Bankers Assn.
Concerns Ease
Peach said some of those sales actually were borrowed from the fall as people rushed to close deals before rates moved higher.
In fact, mortgage rates have retreated somewhat in recent weeks as inflationary fears have eased in financial markets because of signs that economic growth is slowing.
A recently completed survey of 2,000 lenders by HSH Associates of Butler, N.J., found that about 150 mortgage bankers and thrifts offered rates between 9.75% and 9.875% last week. The average rate was 10.32%, HSH said.
A similar survey by Federal Home Loan Mortgage Corp., better known as Freddie Mac, put the average rate on a 30-year mortgage at 10.22%, the lowest since April.
On Tuesday, the Veterans Administration slashed its maximum rate for federally backed VA loans to 10% from 10.5%.
Frederick Flick, an economist for the National Assn. of Realtors, said that despite Wednesday’s report, home sales are expected to remain relatively robust this year.
The association’s latest forecast predicts that sales of existing homes should total 3.48 million in 1988, near the decade’s high but lower than last year’s 3.52 million, while new home sales should reach 661,000, down from 671,000. The sales forecast for 1989 is 3.28 million existing homes and 601,000 new homes.
Forecasts Jump
But economists said they did not expect rates to remain at these levels for long. They predicted that further credit-tightening moves expected by the Federal Reserve after the election would push rates higher.
Peach said he expected that fixed-rate mortgages would hit 11.75% by late next year.
David Seiders, chief economist for the National Assn. of Home Builders, said that while he saw rates rising as well, he did not think the increase would be enough to send the housing industry into a slump.
Instead, he predicted that new home sales will decline to 635,000 units in 1989, down only about 5% from the level he is forecasting for this year.
The big September sales decline was accompanied by a jump in prices. The median price for new homes was $118,900, 8.1% higher than the August sales price of $110,000. The September median price, which means half the homes sold for more and half for less, was 11.2% higher than a year ago, when the nationwide median was $106,900.
The average sales price also rose, climbing 4.5% to $146,300 in September.
Sales in the West bucked the national trend, rising by a sharp 17.3% to an annual rate of 258,000 units, reflecting booming conditions in the California real estate markets.
