Rise in Sales of Existing Homes Stirs Concerns of Inflation
An unexpected rise in April sales of existing homes sparked inflation fears that rocked financial markets Tuesday, despite reports showing waning consumer optimism and only moderate economic growth prospects.
Sales of existing homes edged up 0.5% in April to a seasonally adjusted annual rate of 4.22 million after much larger gains of 6.6% in March and 5.9% in February, the National Assn. of Realtors said.
It was the second-highest monthly sales rate on record, surpassed only by December 1993, when existing homes were being sold at a rate of 4.26 million a year. Wall Street analysts had predicted April sales would fall to 4.08 million a year.
Stock prices dropped in New York after the data was released, with the Dow Jones industrial average down 53.19 points to 5,709.67 on apparent fears that the gains in home sales meant greater inflation risks ahead.
“I think that rattled the bond market, and that was the catalyst that touched off the decline in stocks,” said economist Hugh Johnson of First Albany Corp. in New York. “People had an excuse to take profits,” he added.
In California, sales of existing, single-family homes during April soared nearly 40% above depressed year-ago figures, according to the California Assn. of Realtors. The jump in April sales was the largest year-to-year increase reported by the state Realtor group since December 1986.
The state Realtors’ figures was in line with data released earlier this month that showed home sales in Southern California soared 41.2% in April from year-ago levels.
April home sales were relatively unchanged in the West. In California, 515,410 homes were sold on a seasonally adjusted, annualized basis, up 0.7% from a revised annualized rate of 511,970 homes sold in March. The statewide median price rose 1.6% from the same month last year to $178,710.
Only the Northeast saw a rise in the number of homes sold; sales declined in the Midwest and the South.
Two other reports underlined a growing conviction that economic growth likely will peak in the current quarter and expand only moderately for the rest of the year and in 1997.
New York-based Conference Board said consumer confidence about the economy’s strength dipped slightly in May after firming in April, as those surveyed grew less upbeat about jobs and incomes for the coming months.
The private business research group said its monthly consumer confidence index fell to 101.2 in May from a revised reading of 104.8 in April.
That fit with a separate survey from the National Assn. of Business Economists, which said the economy was on the verge of slowing to a steady crawl from a second-quarter sprint.
David Berson, president of the forecasters group that represents a cross-section industries, said the second quarter will be the strongest of the year, with national economic output booming ahead at an annual rate as high as 3.5%.
Looking forward, the business economists group said prospects were for only moderate growth rates of about 2.2% overall for 1996 and easing to 2.1% in 1997. Total goods and services output expanded 2% in 1995.
Berson said it did not appear that inflation posed a major threat. Most of the recent price rises from costlier oil and grain will ease and “the current inflation scare will pass,” NABE’s latest economic outlook concluded.
Berson predicted that policymakers at the Federal Reserve Board would likely hold interest rates steady when they next meet July 2-3, as they did at last week’s Federal Open Market Committee, because there was nothing to force them to boost rates.
The Realtors’ report on April sales of existing homes credited relatively low mortgage rates for maintaining the housing industry’s sales momentum longer than many economists had anticipated.
Rates for a 30-year loan averaged 7.93% last month, up from 7.62% in March but still below the April 1995 average of 8.62%.
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Consumer Confidence
From a monthly survey of 5,000 U.S. households. 1985=100
May: 101.2
Source: Conference Board
Existing-Home Sales
Seasonally adjusted U.S. annual rate, in millions of units:
April: 4.22
Source: National Assn. of Realtors
