Housing Sales Edge Up; Strong Economy Credited

Despite an upward trend in mortgage rates, sales of new single-family houses edged up nearly 1% last year to 677,000 units, the Commerce Department said today.

Economists, noting that the housing market is usually acutely sensitive to interest rate changes, attributed the increase to the strong U.S. economy, which created 3.7 million jobs and boosted personal income 7.5% last year.

“The higher level of consumer confidence is the major reason for the increase,” said David Berson, chief economist at the Federal National Mortgage Assn. (Fannie Mae). “As long as employment prospects are good and income is strong, people are going to continue spending,” he said.

Last year’s house sales, the highest since 1986, were surprising for many economists because of the shaky start the market had immediately after the October, 1987, stock market crash. Also, after six years of economic expansion, much of the pent-up demand for new houses has been satisfied.

The stock market crash had far less effect on the economy than had been feared, and the housing market is shifting away from first-time buyers and toward homeowners wanting to move up to larger houses, economists said.

The shift toward move-up buyers is also a key reason for the increase in the average sales price of new single-family houses in 1988 to $138,700 from $127,200 in 1987, economists said. The median sales price of new single-family houses also rose to $112,500 in 1988 from $104,500 in 1987.