Sales of new single-family homes set record April's 5.2% gain projects to 888,000 units for year

indicators index up 0.1.%

June 03, 1998|By BLOOMBERG NEWS

WASHINGTON -- Sales of new single-family homes rose to a record level in April and the U.S. index of leading economic indicators rose for the fourth month in a row, signs the economy will maintain its vigor in the months ahead.

"This is just a very strong economy," said Ian McCarthy, president and chief executive officer of Atlanta-based home builder Beazer Homes USA Inc. "We have good confidence and low interest rates -- a good combination for home building."

New home sales rose 5.2 percent in April to an annual rate of 888,000 units, more than reversing March's 4.2 percent decline, the Commerce Department said yesterday. Booming sales in the South were enough to offset declines in other parts of the country.

Separately, the Conference Board said its index of leading economic indicators, intended to project economic activity over the next half year, rose 0.1 percent in April. The index hasn't declined since April 1997.

The housing gains are helping to temper the effects of a slowdown in manufacturing, analysts said. And while the economy probably won't expand in the second quarter as fast as the 4.8 percent annual pace of the first quarter, the cooling of growth may keep the Federal Reserve from raising interest rates for the rest of the year, said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C.

"With the big runup in inventories and the huge surge in imports we saw in the first quarter, we're going to see manufacturing activity slow a bit," Vitner said. "That's the part of the economy the Fed's focusing on."

Private forecasts that U.S. growth will slow this year by a half to a full percentage point because of Asia's economic crisis are reasonable, San Francisco Federal Reserve Bank President Robert Parry said, in a speech in Idaho yesterday. Still, the effects of the crisis on U.S. growth so far have been "less than expected," he said.

The housing report showed April marked the eighth straight month the annual pace of new home sales was above 800,000 units, the longest such stretch since the series began in 1963.

"Given that existing home sales have been in record territory for some time, strong new sales should not come as a surprise," said Ian Shepherdson, chief economist at HSBC Securities Inc. in New York. "With mortgage rates unlikely to rise for the foreseeable future, the strength in housing activity is unlikely to subside this year."

The average rate on a 30-year fixed mortgage averaged 7.15 percent in April, little changed from 7.13 percent in March. Rates have fluctuated around 7 percent for the past several months.

Sales rose 18.1 percent in the South to a 418,000-unit annual rate. In contrast, sales in the Midwest fell 9.2 percent to 157,000 units at an annual rate, fell 3.1 percent in the Northeast to a 95,000-unit pace, and fell 0.5 percent in the West to a 218,000-unit rate.

Last year, the Southeast led the nation in job growth -- 3 percent compared with 2.3 percent nationwide -- and unemployment -- posting a 4.6 percent rate compared with the nation's 4.9 percent.

During the first quarter, new home sales averaged an 859,000-unit annual rate, the highest three-month average on record, a Commerce Department spokeswoman said. April's pace broke the record of 881,000 units set in February.

The inventory of new homes for sale at the current sales pace fell to a 3.9-month supply in April, after increasing to a 4.2-month supply in March.

The supply of new homes should keep builders busy for the remainder of this year, according to analysts.

The Conference Board showed that six of the 10 components that make up the leading index strengthened in April, with growth in the money supply and rising stock prices accounting for much of the gain.

Also contributing to April's rise in leading indicators: increased orders for non-defense capital goods, a wider spread between the yield on the 10-year Treasury note and the federal funds rate, increased orders for consumer goods, and a rise in the University of Michigan's consumer expectations index.

Pub Date: 6/03/98

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