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New home sales inch up .1% But West posts 12.9% decline By JEANNINE AVERSA The Associated Press WASHINGTON -- New home sales rose a tiny 0.1 percent in July but still managed to post the second-highest level ever, a sign that the housing sector continues to thrive despite rising mortgage rates. The Commerce Department reported Monday that sales of new single-family homes increased to a seasonally adjusted annual rate of 980,000 units last month -- up from 979,000 units in June. July's rate was the highest since 985,000 new homes were sold in November 1998. Many analysts had expected higher mortgage rates to cut into sales. Some predicted 905,000 units would be sold. "My reaction was, 'Wow!"' said Ken Mayland, chief economist for KeyCorp. "One of the reasons the housing industry continues to outperform expectations is that stock market gains are continuing to burn a hole in the pockets of prospective home buyers." Low unemployment and higher wages and benefits are helping sales, but economists said other factors are at work. Some people, for instance, are jumping off the fence to lock in a deal now before mortgage rates climb further. They figure they can refinance their homes if rates fall. Thirty-year fixed-rate mortgages averaged 7.63 percent in July, up from 7.55 percent in June and 6.95 percent in July 1998. In August, the rate hit 8.15 percent, the high for the year so far. But the report Monday and one last week showing a 3.9 percent drop in existing home sales in July suggested that rising mortgage rates are starting to restrain sales, economists said. "You are really beginning to see rising rates dampen people's appetites to buy a home," said David Lereah, chief economist for the Mortgage Bankers Association of America. A 1 percentage point rate increase means an estimated 400,000 families won't buy a home, he said. Separately, a Federal Reserve survey of U.S. banks, released Monday, showed that demand for home mortgages had decreased in recent months while demand for other consumer loans held steady. Last week, the Federal Reserve bumped up interest rates by a quarter of a point, making borrowing more expensive. At the same time, the Fed signaled additional rate increases may not be needed this year unless the economy shows signs of overheating or inflation flares. For new home sales, the 0.1 percent July gain followed a hefty 7.3 percent increase in June, much better than the 3.1 percent gain the government previously estimated. Sales were up in all parts of the country in July except for the West. The Northeast led the way, with a 33.9 percent increase to an annual rate of 83,000 units. The Midwest posted a 9.9 percent gain to 178,000 units. Sales rose 0.2 percent in the South to a record 470,000 units, but fell 12.9 percent in the West to 249,000 units. Today's Business Index Mail Tribune Copyright � The Mail Tribune 1999, Medford, Oregon USA