New Single-Family Home Sales Hit 8-Year Low

Sales of new single-family homes dropped 3.5% in October to the lowest level in eight years, the Commerce Department reported Tuesday. But analysts said that the free fall may be bottoming out and that sales should begin rebounding by spring.

“Sales should be leveling off at this number in the fourth quarter and the first quarter of next year,” assuming mortgage rates continue to fall and the Mideast problem is resolved, said economist David G. Seiders of the National Assn. of Home Builders.

Economist Mark H. Obrinsky of the Federal National Mortgage Assn. suggested that sales may zigzag for several months, “but assuming no blowup in the Middle East . . . I expect to see a more sustained pickup by spring of 1991.”

Sales totaled a seasonally adjusted annual rate of 491,000, the Departments of Commerce and Housing and Urban Development said in a joint release. That was the lowest since 480,000 new homes were sold in October, 1982, a month before the 1981-82 recession ended.

So far this year, new-home sales were off 15.8% from the same period of 1989.

Sales fell 4% in September and 2% in August. The September figure was revised down from 6% in the departments’ initial estimate, but the October total was worse than the 1.8% drop first reported.

Obrinsky said the main reason for the decline “is great consumer uncertainty and generally negative buying sentiment.”

Consumers, he said, are experiencing rising prices caused by the Persian Gulf crisis and increasing unemployment as the economy slows.

“But, really, the big one is the great uncertainty over the Mideast . . . concern over war breaking out,” Obrinsky added.

At the October sales pace, it would take 8.4 months to exhaust the inventory of unsold homes, up from 8.3 months in September. There was a seven-month supply of unsold homes in October, 1989.

But Richard Peach, an economist with the Mortgage Bankers Assn., said builders are cutting back on housing starts to counter the slow sales.

And “once the market recovers, you’re going to find relatively few new homes,” he said. That, in turn, will drive up prices that have been declining recently.

The median price of a new home in October was $121,800, up from $112,900 in September but down from $123,000 a year ago. The median means half of the homes cost more, half less.

New Home Sales Seasonally adjusted annual rate, thousands of units Oct., ‘90: 491 Sept., ‘90: 509 Oct., ‘89: 636 Source: Commerce Department