Home sales soar to 6-year high April jump is 22.7%

economy up weakly

June 02, 1993

WASHINGTON -- Sales of new homes soared 22.7 percent in April to the highest level in more than six years, the government said today.

Meanwhile, The government's chief economic forecasting gauge rebounded only a feeble 0.1 percent in April after taking its worst plunge in two years the month before, the Commerce Department said today.

The barely perceptible rise in the Index of Leading Indicators, following a 1 percent plummet in March, fits with the views of the more pessimistic analysts who see little chance the economy will soon break out of its lethargic growth pattern.

Home sales were a bright spot, however.

They more than doubled in the Northeast and posted double-digit gains elsewhere. The Northeast and South had lost sales during a blizzard a month earlier.

The departments of Commerce and Housing and Urban Development said sales of new single-family homes in April totaled a seasonally adjusted annual rate of 751,000, up from a revised 612,000 a month earlier. The government initially estimated sales at 637,000 in March.

Many economists had expected no more than a 2 percent increase.

The April advance was the largest since a 22.9 percent gain in September 1986 and boosted sales to the highest level since they stood at 784,000 in December 1986.

Few analysts see any chance the economy is on the brink of another recession. At the same time, growth has been so painfully slow that the nation's unemployment rate, stuck at 7 percent since February, may even tick up during the summer, they warn.

"It's certainly not any kind of boom situation," said economist Lynn Reaser of First Interstate Bancorp of Los Angeles. "Companies are still remaining very cautious about adding to payrolls."

In advance, economists were looking for a somewhat stronger gain in the index of 0.3 percent or 0.4 percent.

Economists said the growth rate would be further depressed by a rise in interest rates that could occur if Congress fails to follow through on President Clinton's plan to reduce the budget deficit.

"We think the second half will look stronger . . . but a lot of it depends on what happens in Congress. The bond market is very nervous. There's a strong suspicion that Congress will end up watering down the deficit reduction," said economist David Wyss of DRI-McGraw Hill, a Lexington, Mass., forecasting firm.

Many analysts believe that with winter gone, the housing industry will grow modestly during the remainder of the year. The National Association of Home Builders had been forecasting 680,000 new home sales in 1993, up from 610,000 a year earlier.

These analysts point to what they call favorable fundamentals for home buying -- high affordability coupled with the lowest mortgage rates in two decades.

The median price of a new home rose 2 percent to $127,500, the government said. The median means that half of the homes cost more and half cost less.

At the same time, surveys by the Federal Home Loan Mortgage && Corp. showed that 30-year, fixed rate mortgages averaged 7.48 percent in April, down from 7.50 percent a month earlier and 8.85 percent a year ago.

The seasonally adjusted estimate of new houses for sale at the end of April was 270,000, representing a supply of 4.4 months at the current sales rate. It was the smallest backlog since a 4.1-month supply in July 1971.

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