THE ECONOMY : Sales of New Homes Surge 10.9% in April

Sales of new homes were up a strong 10.9% in April, the Commerce Department said Tuesday, but housing economists say the industry will remain sluggish at least into summer because of high interest rates.

The increase in sales to 620,000 units on a seasonally adjusted annual basis was due to an aberration in sales in February and March, when sales dropped 10.9% and 10.4% respectively, the economists said.

The April increase was the steepest since a 13.9% jump in February, 1988.

Analysts were divided over how soon the housing market would pick up.

“We view the market tone as generally weakening,” said David Seiders, chief economist for the National Assn. of Home Builders.

“We’re looking for further weakening in certainly the third quarter, perhaps the fourth as well,” he said.

But Richard Peach, deputy chief economist for the Mortgage Bankers Assn., said although the industry “still is in a slowing trend,” the second quarter will be the “trough.”

“As lower interest rates kick in, sales will increase as the summer goes on,” Peach said.

Fixed-rate mortgage interest reached a peak of 11.22% in March and began to drop in April, averaging between 10.99% and 11.11%, according to a weekly national survey by the Federal Home Loan Mortgage Corp.

Expects More Activity

Rates had been rising for more than a year as the Federal Reserve tightened credit in an attempt to stem inflation.

David W. Berson, chief economist for the Federal National Mortgage Assn., said he thinks that housing activity will increase if mortgage rates continue to fall.

“We don’t expect a tremendous surge in housing activity, but we do expect it to bounce back a little bit from the levels we saw in February and March,” he said. “We’re likely to see new home sales between 600,000 and 650,000 (on a seasonally adjusted annual basis) over the next several months.”

The April sales level compares to new home purchases totaling 676,000 in 1988 and 671,000 in 1987.

John Tuccillo, chief economist for the National Assn. of Realtors, also sees a slight pickup in sales activity later this year.

“We anticipate new home sales will pick up slightly during the second half of 1989, ending the year with a sales total of about 640,000,” he said.

The West paced the April rebound with a 31.3% increase in sales to 193,000. It was followed by a 21.2% jump to 234,000 units in the South.

Sales fell 6.8% to 96,000 homes in the Midwest and 17.2%, also to 96,000, in the Northeast.

The decline in sales in the Northeast, where housing costs generally are highest, was the major cause for a $9,000 drop in the median price of homes to $117,000 last month, the analysts said.

It was the first median-price decline since a $2,500 decrease last November. The median price represents the level where half of the homes cost more and half less.

The average price, which is affected by sales of expensive homes, totaled $145,700 in April, down $4,800 from the previous month.

NEW HOME SALES April ‘89; 620,000, up 10.9% Seasonally adjusted rates, in thousands; Source: Commerce Department