August Sales of New Homes Decline 1.4%

Higher interest rates and consumer fears about the future drove new-home sales down 1.4% in August, leaving sales 24% lower than at the same time last year, the Commerce Department said Tuesday.

But industry analysts said the sales tumble was not as sharp as they had feared, given the dose of bad news about the Middle East and oil prices during the month.

But they predicted that sales would drop further.

August sales were at a seasonally adjusted annual rate of 550,000 single-family homes, down from 719,000 in the same month last year.

The August sales decline followed a revised 0.2% fall in July from June’s level. The July decline was originally reported as a 2.3% drop.

“If anything, the surprise is that sales didn’t fall further,” said Dick Peach, an economist with the Mortgage Bankers Assn., adding that rising interest rates may have encouraged some people to buy now rather than risk a higher-cost mortgage later.

Peach noted that a 30-year fixed-rate mortgage that was available at 9.8% on July 27 rose steadily to 10% by Aug. 10 and to 10.2% by Aug. 24.

“As often happens, when rates move up there is an actual increase in sales initially,” he added. Analysts say this is because home buyers seeing rates starting to creep up try to buy quickly to lock in a lower rate.

But in the long run, rising interest rates discourage buyers or disqualify them because they cannot afford the payments.

The only region where sales rose was in the West, which saw a slim 0.7% rise to a rate of 139,000.

Sales in the Northeast, where problems with many real estate loans have been reported, were flat at a seasonally adjusted annual rate of 77,000 in August.

Sales dropped from July levels in the Midwest, by 3.2% to a rate of 91,000, and were down 2% in the South to 244,000 houses.

The August sales total of new homes before seasonal adjustment was unchanged from July at 47,000 units. In the first eight months of 1990, actual sales fell 14% to 400,000 homes.

NEW HOME SALES

Seasonally adjusted annual rate, thousands of units:

Aug. ‘90: 550

July ‘90: 558

Aug. ‘89: 719

Source: Commerce Department