New Home Sales Up 8.3%, but Slowing Seen : Economy: West sees a 6.5% gain in July, but rebound is still well below December’s peak.
New home sales rebounded in July, but analysts said the trend is for slower growth in a sector of the economy that is particularly sensitive to rising interest rates.
New home sales surged 8.3% last month, the government said Tuesday, and the rates for May and June were revised upward. Still, the June level was a 15-month low, and the July sales were well below December’s peak.
Sales rose 6.5% in the West, which includes California.
“The July rebound is making up some ground, given the huge drop in June,” said economist Robert Dederick of Northern Trust Co. in Chicago. “The basic message is we’ve passed over the top of the market and we’ve begun to descend. But there’s no reason to believe it will be precipitous.”
Meanwhile, the Conference Board said its widely followed survey shows that consumer confidence in the economy dropped in August for the second straight month. The index fell to 89.0 from a revised reading of 91.3 in July and 92.5 in June, which was the highest level in four years.
Most analysts agreed that the five increases in interest rates by the Federal Reserve Board since February are taking a toll on the housing market.
“Clearly, we’re showing the effects of rising interest rates,” said Jim Irvine of the National Assn. of Home Builders. “If they continue to rise, we’ll have significant problems.”
The Departments of Commerce and Housing and Urban Development said sales of new homes, which declined a revised 11.4% in June, totaled a seasonally adjusted annual rate of 664,000 in July.
All regions of the country except the Midwest benefited from last month’s recovery, which most analysts had predicted.
The June rate was revised to 613,000, up from an initial estimate of 591,000. Still, the higher figure was the lowest level since the rate was 600,000 in March, 1993.
The annual rate for new home sales peaked in December at 817,000 in response to the lowest mortgage rates in a generation.
The government previously reported that sales of existing homes slipped slightly in July but that construction of new homes was up from June.
Fixed-rate, 30-year mortgages averaged 8.62% in July, up from 8.43% in June and 8.6% in May. Rates hit a 25-year low of 6.74% in October, according to the Federal Home Loan Mortgage Corp. Rates averaged 8.56% last week.
This year’s nearly two-percentage-point increase adds about $200 to the monthly payment on a $150,000 mortgage.
But some analysts said the greater availability of adjustable-rate mortgages is blunting the impact of higher rates by allowing buyers to pay less in the first years of new home ownership.
“Monthly carrying costs have not risen in the near term,” said Eugene Sherman of M.A. Schapiro & Co. in New York. “Adjustable-rate mortgages accounted for 15% to 20% of mortgages prior to February and now they’re at 45% to 50%.”
The July rebound may also have been helped by a drop in prices. The median price of a new home declined to $123,000, down 6.1% from $131,000 in June. The median is the midpoint, meaning half the homes cost more and half cost less.
The government said sales of homes during the first seven months of 1994 were 6.6% above the same period last year. The seasonally adjusted estimate of new houses for sale at the end of July was 314,000, representing a supply of 5.8 months at the current sales rate.
Regionally, sales rose 17% in the South, to a 289,000 annual rate. They were up 9.8% in the Northeast to a 56,000 rate.
Sales rose in the West to a 198,000 rate. Sales declined 6.2% in the Midwest to a 121,000 rate.