Rate Cut Unlikely as Home Sales See Boost : Economy: National figure posts 5.1% increase over last year. Fed policy-setting arm meets today on interest rates.
Buoyed by falling mortgage rates, the nation’s housing market showed surprising strength in two separate reports Monday, signaling that it is unlikely that the Federal Reserve Board will cut interest rates to stimulate growth when its policy-makers meet today.
Home resales nationwide were 5.1% higher in August than they were a year ago, according to the National Assn. of Realtors. And while California sales of existing homes were 2% lower in August than they were a year ago, they jumped an impressive 10.2% from July, the California Assn. of Realtors said Monday.
“We expect home sales to continue improving this fall, setting the stage for a solid rebound in 1996,” said Ed Albers, president of the association and a Sacramento-area broker.
The home sales figures will be taken into account today when the Fed’s Open Market Committee meets during its regularly scheduled session to set the course of interest rates. Most Fed observers expect the agency will leave rates unchanged in the wake of a series of positive economic signs, including the August home sales figures.
“It is a very impressive performance . . . and it suggests less urgency for the Fed to lower rates and relax [monetary] policy,” said William V. Sullivan Jr., director of money market research at Dean Witter Reynolds in New York.
The most recent Fed action came July 6, when the nation’s central bank cut a key short-term interest rate by a quarter of a percentage point to 5.75%. Another rate cut now would perhaps overstimulate the economy and increase inflationary pressure, economists said.
But August’s home sales figures and other economic signs do not suggest a dramatic turnaround, said William H. Gross, managing director of Pacific Investment Management Co. in Newport Beach.
“It is nothing to get excited about in terms of the economic strength,” Gross said. “But it is just enough to hold back the Fed.”
While the Fed’s Open Market Committee weighs many other factors, home sales are closely tracked because “it’s the sector that is the most sensitive to changes in interest rates,” said David M. Jones, an economist at Aubrey G. Lanston & Co., a New York-based investment firm.
Nationwide, single-family home sales in August climbed to an annualized rate of 4.11 million houses--the highest rate since May, 1994, the National Assn. of Realtors said. The August pace was 3% higher than it was in July.
On a regional basis, the rate of August home sales grew 3.4% in the Northeast to 600,000, edged up 1.3% in the South to 1.54 million, climbed 3.9% in the Midwest to 1.06 million and increased 3.4% in the West to 900,000.
In California, 458,110 single-family homes closed escrow in August on a seasonally adjusted, annualized basis, compared to 467,370 in August, 1994. The median sales price also declined from last year, falling 1.4% to $185,790.
The California Assn. of Realtors pointed out that August’s results reflect the smallest year-to-year drop in median prices and sales so far this year. August’s sales were also up substantially from the revised annualized rate of 415,810 units reported for July, the realtors group said.
“The economic recovery in California is finally beginning to have a tangible impact on the state’s housing market,” said CAR economist Leslie Appleton-Young. “A sustained recovery in California’s housing market will help fuel even stronger growth in the state’s overall economy.”
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Existing Home Sales
Seasonally adjusted annual U.S. rate, in millions of units: August 1995, 4.11
Source: National Assn. of Realtors
