Sales of new, single-family homes slumped 9.4% in February to the lowest level in more than a year, the government said Wednesday, and analysts expect further declines as rising mortgage rates push more people out of the market.
Sales dropped to a seasonally adjusted annual rate of 626,000 units after advancing 2.5% in January, when unusually mild weather brought out more buyers.
The drop in sales was accompanied by an 8.9% increase in the median price of the homes sold, which analysts said showed that lower-income purchasers were the ones who left the market.
“The first people forced out of the market in times of rising rates are first-time buyers who barely qualify to buy a home,” said John Tuccillo, chief economist of the National Assn. of Realtors.
Last month’s median price for a new home was $123,100, meaning half the homes sold for more and half for less. The average price, which is pulled up by sales of very expensive homes, was up 9.2% to $150,200.
The biggest drop in new home sales last month was recorded in the Northeast, where sales dropped 19.9% to a seasonally adjusted annual rate of 101,000. The Northeast market has weakened after several years in which strong sales resulted in overbuilding and inflated prices.
Sales last month were off 14.4% in the South to an annual rate of 214,000, down 1.4% in the West to 210,000, and down 1% in the Midwest to 101,000.
Analysts said because the housing market is particularly sensitive to interest rates, it is among the sectors of the economy most directly affected as the Federal Reserve Board tries to restrain growth and dampen inflationary pressures by driving rates upward.
Housing construction and sales of existing homes also were down sharply during February, according to earlier reports from the Commerce Department.
“The housing sector is stumbling,” said economist Bruce Steinberg of Merrill Lynch & Co. in New York. “It’s an indication that higher mortgage rates are taking a toll on the housing sector, one which is likely to intensify over the next couple of months.”
Fixed-rate home mortgages last week were averaging 11.22%, up from 9.99% a year earlier, according to a national survey by the Federal Home Loan Mortgage Corp.
One-year adjustable-rate mortgages also were up sharply, with lenders asking an average initial rate of 9.3% last week, up from 7.52% a year earlier, Freddie Mac said.
At the White House, presidential press secretary Marlin Fitzwater said the decline in home sales reflected the higher interest rates and “probably some slowing in the economy.”
It was the biggest decline since a 9.5% drop last November and left sales at the lowest rate since the 576,000 level of January, 1988.
Tuccillo said with mortgage rates expected to continue rising through the spring, new home sales likely will decline further over the next few months and then start to pick up.
Dave Seiders, chief economist for the National Assn. of Home Builders, said sales for all of 1989 are expected to be down 6% from last year, but the situation could be worse if the Fed tightens credit too severely.
“Our association is very up-tight about what the fed has been doing” Seiders said."When the Fed moves to slow down an economy like this, they almost always overshoot.”