New-Home Sales Hit 2 1/2-Year High : 14.4% Jump in July Credited to Slumping Mortgage Rates

Sales of new homes, bolstered by falling mortgage rates, surged 14.4% in July, the fastest pace in more than 2 1/2 years, the Commerce Department reported Tuesday.

New single-family home sales rose to a seasonally adjusted annual rate of 739,000 units, the highest annual rate since December, 1986, the department said.

The report on home sales and an upward revision of economic activity in the second quarter suggest that the economy remains relatively healthy and that the Federal Reserve is likely to hold interest rates steady, economists said.

The July rise in new-home sales was the biggest monthly increase over the prior month since a 22.9% jump in sales in September, 1986, the department said. In December of that year, sales of new homes hit a seasonally adjusted annual rate of 784,000 units.

“I think it is perfectly clear that lower interest rates have energized the home buyer,” said Lyle Gramley, senior economist with the Mortgage Bankers Assn.

In the Northeast, new-home sales soared 55.8% in July after a 12.5% drop from May to June. The July increase was the highest for the region in 6 1/2 years, the Commerce Department said.

More Modest Homes

Price concessions by builders to move bloated inventories helped sales in the Northeast, economists said. “That, together with lower interest rates, has made all the difference in the world,” Gramley said.

John Tucillo, chief economist for the National Assn. of Realtors, said the report also reflected a move by home buyers toward more modest homes.

The average home sales price in July fell to $143,300 from $155,500 in June and $144,000 in May, the government said.

Home sales were strong in July throughout the country. Sales jumped 23.8% in the Midwest, 2.4% in the South and 8.9% in the West, the department said.

The number of homes for sale at the end of July fell to a seasonally adjusted annual rate of 371,000 units, a 6.1-month supply, from 379,000, the department said.

The low supply level may spur builders to take on new projects, Gramley of the Mortgage Bankers Assn. said.

Mortgage interest rates have been declining since March, falling to 9.5% in July in some parts of the country. But in the past three weeks, mortgage rates have inched upward, which could dampen sales.

Interest rates for fixed-rate 30-year loans averaged 10.21% last week, according to the latest survey by the Federal Home Loan Mortgage Corp.

In a related report, the California Assn. of Realtors said the number of Californians able to afford a home remained steady in July as lower mortgage interest rates offset higher home prices.

Indexes Unchanged

Statewide, 16% of households earned the income needed to qualify for a loan to purchase the median-priced existing single-family home, which sold for $202,650. The price was up $2,205 from June.

Based on a 20% down payment, a household would need a minimum annual income of $68,150 to afford the monthly mortgage payments of $1,703.

In the Los Angeles region, the index was unchanged at 12% for a median-priced home of $224,456.

In the Orange County region, the index was unchanged at 13% for a median-priced home of $255,897.

In the San Diego region, the index rose to 19% from 18% in June. The median-priced home was $175,794 in July.

The San Francisco Bay region’s 9% index was the lowest in the state. At a July median price of $269,982, a household needed a minimum annual income of $90,738 and faced monthly payments of $2,268.

A year ago, the San Francisco regional index was 18%.

In the Ventura region, the index was unchanged from June at 10% for a median-priced home of $252,451.

In the Riverside-San Bernardino area, the index was unchanged at 29% for a median-priced home of $126,372.