New-home Sales Still Brisk, But Ease A Bit

Mortgage Rates Apparently Have Yet To Deter Buyers

April 29, 1997|By BLOOMBERG NEWS

WASHINGTON -- New-home sales slowed last month but remain at a near-record pace for the year, suggesting that mortgage rates will have to climb much higher to significantly curtail U.S. housing demand.

Sales of new homes slid 2.5 percent in March to a seasonally adjusted annual rate of 813,000, Commerce Department figures showed yesterday. Still, that's a pace that would exceed last year's total of 756,000 -- the best showing since 1978.

And following a revised increase in the January and February sales statistics, the government reported that builders sold 209,000 new houses in the first three months of the year, 9 percent more than the 191,000 sold in the corresponding period a year earlier.

All that indicates that higher mortgage rates aren't yet slowing demand. "You have ready capital at sufficient levels for people to participate" in the housing market, said Robert Strudler, chairman and chief executive officer of Houston-based U.S. Home Corp. Mortgage rates, he added, are in a range where they're "part of a good affordability index."

Borrowing costs are half a percentage point higher than they were in mid-February. At the same time, the economy continues to add jobs and consumer confidence hovers near record levels. Builders say the low U.S. unemployment rate -- at 5.2 percent it's near a seven-year low -- is enough to offset a mortgage-rate increase of up to 1 percentage point.

"The biggest challenge to the housing industry is employment," said Leonard Miller, chairman of Miami-based builder Lennar Corp. "At these levels, even if rates go up another half point, I'm still quite bullish about our outlook -- nationally and for our own business."

Revised figures showed sales of new homes reached an annual rate of 834,000 in February, the highest level in almost 11 years. A key gauge of consumer demand, the supply of homes for sale nationwide, dropped to its lowest level since April 1994 and the inventory of vacant homes stood at just a 4.5-month supply, well below the six or seven-month level that would signal a falloff in demand, analysts said.

Economists expect housing sales to slow, eventually, in line with the overall economy. "In the long run, [mortgage] rates will go high enough to slow down housing, however high that is," said Roseanne Cahn, an economist at CS First Boston in New York.

With the economy as a whole likewise showing few signs of cooling off, investors are expecting Federal Reserve policy-makers to push up the overnight bank lending rate again, perhaps as early as May 20, when they next meet. The Fed's policy-making Open Market Committee raised the target for overnight loans a quarter point to 5.50 percent March 25.

Mortgage rates followed suit soon after. The average rate of a fixed 30-year mortgage was 7.90 percent last month.

Pub Date: 4/29/97

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