July New Home Sales Fall 2.6% Despite Lower Prices : Real Estate: Even the lowest mortgage rates in 19 years were not enough to entice buyers.

Americans purchased fewer new homes in July than the month before, despite the lowest mortgage rates in 19 years and the sharpest drop in the median sales price in 11 years, the government said Monday.

Sales declined 2.6% to a seasonally adjusted annual rate of 563,000, the departments of Commerce and Housing and Urban Development said.

“This kind of tug-of-war between cheaper rates on the one hand and a weak job market and falling consumer confidence on the other hand is turning into a standoff,” said David Seiders of the National Assn. of Home Builders.

“The overall economy is clearly still staggering and so is the housing market.”

In advance, economists were expecting a slight increase and were disappointed in the modest drop. They said low rates and low prices were not enough to entice buyers concerned about their economic prospects.

“The real problem with housing is not a lack of affordability. It is a lack of confidence in income and jobs,” said economist David Berson of the Federal National Mortgage Assn. “People are still worried about being laid off, and people are still worried about not having enough income to pay for a new and more expensive house.”

July marked the fourth sales decline this year and the steepest since March. Sharp drops in the Northeast and South were only partly offset by sales gains in the Midwest and West.

New home sales were up 9% in the West to 158,000. They fell 16.9% in the Northeast to a seasonally adjusted annual rate of 64,000. They dropped 10.1% in the South to a rate of 231,000. Sales rose 11% in the Midwest to a rate of 111,000.

The median price of a new home--meaning that half the homes sold for more and half for less--was $115,000 in July, down 7.9% from $124,900 in June. It was the steepest decline since September, 1981. A year ago, the median price was $120,000.

Berson and other economists said construction companies are building more modest homes in an attempt to appeal to first-time buyers unburdened by the chore of having to sell a home in a soft market.

“This is a great time to buy a house if you don’t have to sell one,” he said.

Mortgage rates declined by nearly a half percentage point in July, hitting a 19-year low near 8% by the end of the month. That reduced the monthly principal and interest payment on a $100,000 mortgage by $35 to $734.

Lower rates apparently helped stimulate a 3.9% gain in sales of existing homes in July, but Berson said it would take some months before the full impact of lower rates is seen.

“People don’t look at the newspaper and see interest rates have fallen and then go out and buy a house the next day,” he said. “The impact probably will be greatest in September and October.”

The July drop in new home sales followed gains of 5.3% in June and 0.5% in May. Sales fell in April, March and February.

There were also substantial revisions in both the May and June sales data. Sales in May were up a slight 0.5% instead of down 0.9% as first reported, while June sales rose by just 5.3% and not 7.9%.

The inventory of new homes for sale at the end of July was 272,000, a 5.9-month supply at the current sales rate, up from 5.8 months in June.

Looking at the longer-term trends, economists said sales have been improving in the South and Midwest, stagnant in the Northeast and struggling in the West.

New Home Sales Seasonally adjusted annual rate, thousand of units July, ‘92: 563 June, ‘92: 578 July, ‘91: 505 Source: Commerce Department