Home resales up surprising 4.3 percent

1 percent drop expected in light of rate increases

Real estate

June 27, 2000|By BLOOMBERG NEWS

WASHINGTON - U.S. home resales rose in May to the second-strongest pace this year, aided by near-record consumer confidence and unemployment close to a 30-year low.

Resales rose 4.3 percent last month to a seasonally adjusted annual rate of 5.09 million units after falling 6.2 percent in April, the National Association of Realtors said yesterday. Analysts had expected a 1 percent decline, in part because the Federal Reserve has increased borrowing costs six times in 12 months.

"I thought interest rates would have gotten to us by now, but they haven't," said Wes Foster, president of Long & Foster Real Estate Inc. in Fairfax, Va. His explanation: Higher consumer confidence, plus "everyone is still working."

May's unexpected increase runs counter to new-home construction statistics that show a slowdown in sales. Some economists believe that the report increased the possibility that Fed policy-makers, who meet today and tomorrow, may boost interest rates a seventh time to slow growth and hold down inflation. Their latest increase, May 16, put the overnight bank loan rate at 6.5 percent, the highest in nine years.

"The economic slowdown isn't entirely evident," said Richard Yamarone, senior economist at Argus Research Corp. in New York. "This is the Fed's big fear: that they refrain from raising rates and data continue stronger."

May's sales pace was exceeded this year only by a 5.2 million-unit rate in March, the realty group's report showed. Sales were up in all regions of the country and were paced by a 7.5 percent increase in the Midwest.

The median price of a home last month rose to $137,200 - the highest since August - from $136,100 in April.

In May, 30-year fixed-rate mortgage rates rose to 8.64 percent, the highest in five years, according to Freddie Mac, the No. 2 buyer of U.S. mortgages. Since then, the 30-year rate had fallen to a low of 8.14 percent by last week.

The supply of homes for sale was 3.6 months' worth in May, close to the 3.8-month supply in April and up from 2.6 months in January.

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