New-Home Sales Up 0.4% but Still Near 7-Year Low

New-home sales in May rose at an annual rate of 0.4% but were still at virtually their lowest level since the last recession 7 1/2 years ago.

The government said Friday that the increase--from an annual sales rate of 530,000 homes in April to 532,000 in May--was the first in six months.

Most analysts attributed the continuing sales weakness to double-digit mortgage rates, but some said flagging consumer confidence has become a major factor as the job market weakens and wage growth slows.

The Commerce Department reported that new-home sales totaled a seasonally adjusted annual rate of 532,000 units in May after falling 5.2% the previous month.

The government said the decline from March to April was worse than the 1.6% drop first reported last month. And the rate of sales in both months was the lowest since 521,000 units were sold in December, 1982. The 1981-82 recession ended that November.

The pace of sales during the first five months of 1990 was down 9.6% from the same period last year. Actual sales in 1989 totaled 650,000, down from 676,000 in 1988.

Analysts also expressed concern about the high inventory level. While May’s 8.2-month backlog slipped from the 8.4-month inventory in April, it matched the 8.2-month level of July, 1982, during the last recession.

The backlog refers to the number of months it would take to sell the existing supply of homes.

The backlog “suggests that we’re going to have some problems down the road until sales pick up a little bit,” said Thomas Holloway, an economist with the Mortgage Bankers Assn.

Robert Villanueva, forecasting director for the National Assn. of Home Builders, said the “uncomfortably high” level of unsold houses also “suggests that housing starts will continue to be weak in order to bring starts in line with demand.”

The National Assn. of Realtors, which monitors existing home sales, reported this week that resales of single-family homes declined 1.2% in May to a seasonally adjusted annual rate of 3.29 million. Existing home sales have fallen every month this year except for March, when they were unchanged.

But Holloway and other analysts predicted that falling mortgage rates will stimulate home sales in the months ahead.

“Rates have fallen about half of what they went up, and that has to have some positive effect on sales,” said David Berson, chief economist with the Federal National Mortgage Assn. “They may not go up by much, but they will go up over the course of the year.”

Mortgage rates this year peaked at 10.67% at the beginning of May before falling to 10.33% at month’s end, according to the Federal Home Loan Mortgage Corp.

Martin Regalia, an economist with the National Council of Savings Institutions, said consumer caution was another reason for a weak housing market.

“When consumer uncertainty increases, big discretionary purchases--big new cars, big new houses, those kinds of things that can be delayed--are the first to get delayed,” he said.

NEW--HOME SALES Seasonally adjusted annual rate, thousands of units May, ‘90: 532 April, ‘90: 530 May, ‘89: 610 Source: Commerce Department