February Sees Plunge in Sales of New Homes : Economy: Decline is 14% for the nation, 28.5% for the West, where rains added to the slowdown.


Nationwide sales of new homes took a 14% dive in February from year-ago levels, the Commerce Department said Wednesday, as house hunters backed off in the face of higher interest rates.

The decline was even steeper in the West, where torrential rains contributed to a 28.5% drop in February, to a seasonally adjusted annual rate of 118,000 units. That was the sharpest monthly decrease for the region in more than 13 years, since a 31% fall in January, 1982.

"If you combine record rainfall with seven (Federal Reserve Board) interest rates hikes, you are going to have much slower sales," said Jeffrey Charney, vice president of marketing for Los Angeles-based home builder Kaufman & Broad Home Corp., which saw February sales drop in California but rise in out-of-state markets.

February's decline was yet another sign of weakness in the housing market and a harbinger of a slowdown in the nation's economy, some analysts said. Early this week, a report on February sales of existing homes showed a 5% decline from 1994 figures.

"This is another sign that consumer spending is really slowing down," said Cynthia Latta, an economist at DRI/McGraw-Hill.

The February plunge in sales of new homes--which translated into a seasonally adjusted annual rate of 551,000--follows a revised January increase of 2.6%, which was originally reported as a 3.8% gain. In addition, the government revised its December figure from a 0.9% increase to a 2.6% drop.

"This is very consistent with falling starts last month and with weaker existing home sales," said economist David Lereah of the Mortgage Bankers Assn.

Despite a modest increase expected later in the spring, Lereah said, the annual rate of new home sales this year is unlikely to exceed about 615,000, which would represent an 8% drop from last year's level.

Sales of new homes were off across the nation last month, falling 8.8% in the Midwest, 10.7% in the South and 1.6% in the Northeast. The median price of a new home was $129,900, up from $127,900 in January but unchanged from February, 1994.

By the end of February, there were an estimated 350,000 new homes finished and on the market. That was the most in more than 4 1/2 years, since 353,000 in June, 1990, presenting a significant inventory that will keep building rates down.

February's poor showing was blamed primarily on interest rates, which remain well above year-ago levels even though they have fallen slightly since late last year. Fixed-rate mortgages averaged 8.77% last month compared to 7.15% in February, 1994, according to the Federal Home Loan Mortgage Corp.

"Every time we try to get off the canvas, these higher rates knock us right back down," said Robert Rivinius, chief executive of the California Building Industry Assn.

Many western home builders and developers relied heavily on advertising and incentives to attract potential buyers amid rainstorms. In Bakersfield, Kaufman & Broad opened a new development during a downpour on Feb. 4. About 500 people showed up--but only after the company advertised heavily.

"You can't back away. . . . You have to be even more aggressive in this market," said Kaufman & Broad's Charney.


Times wire services contributed to this report.


U.S. Home Sales

Seasonally adjusted annual rate, in thousands of units:

Feb. 1995: 551

Source: Commerce Department

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