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Home sales stay hot
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August 30, 1999: 11:45 a.m. ET
Robust July sales reflect effort of buyers to lock in low mortgage rates
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NEW YORK (CNNfn) - New home sales continued at near-record levels in July as buyers looking to lock in on low financing rates went house hunting, government figures released Monday show.
Sales of newly built single-family houses rose 0.1 percent to a seasonally adjusted annual rate of 980,000, the Commerce Department said. The rate is the second highest ever, just off the record 985,000 annual rate set last November. Analysts had anticipated an annual rate of 910,000 new home sales.
June's sales were up a revised 7.3 percent to 979,000 units, up from the 929,000 originally reported, the Commerce Department said.
A robust economy -- led by exceptional employment growth, rising wages and financial market gains, and stable inflation -- has prompted more buyers than ever to purchase new homes, particularly as mortgage rates make their way higher, said Ian Shepherdson, chief U.S. economist with High Frequency Economics in Valhalla, New York.
"These data reflect very clearly the surge in mortgage demand sparked by the initial rise in rates in the spring," he said. "It will not last but, as we have been arguing for some time, it is simply unrealistic to expect to see seriously weaker housing numbers until the fall."
Red-hot market
Indeed, the robust U.S. economy and consumers' willingness to spend aren't expected to taper off immediately, according to some economists' predictions. That's reflected in the red-hot housing market, where people are more comfortable spending their cash on a tangible asset.
But consumers are expected to retreat, particularly after the Federal Reserve's back-to-back rate increases this summer. While mortgage rates are not tied to the Fed's trend-setting fed funds rate, they are directly connected with yields on government bonds. As bond yields have risen in anticipation of further rate increases, so too have mortgage rates.
For the week ending Aug. 20, the average rate on U.S. 30-year fixed-rate mortgages was 7.93 percent, down from 8.15 percent the week before. A year ago, the rate was 6.92 percent.
"Eventually, we do expect housing to lead the economy into a sustained slowdown, but it will take time, and patience is not the markets' most obvious virtue," Shepherdson said.
The market registered little reaction to Monday's numbers. The Dow Jones industrial average barely budged after the report's release, while the benchmark 30-year Treasury bond dipped slightly, with its yield inversely rising to 5.98 percent.
Sizzling Northeast sales
Sales in the Northeast were almost as hot as the temperature in July, surging 33.9 percent; the Midwest was runner up with a 9.9 percent gain. The South posted only a moderate gain of 0.2 percent while the Southwest saw new home sales decline 12.9 percent in July.
The inventory of new homes on the market was unchanged at a 3.8-month supply in July, while the number of homes for sale rose to 311,000 at an annual rate. That was the highest level of homes for sale since December 1996.
The median price of new homes increased 0.6 percent in July to $156,000 from June's $155,000, the report said. July's median price is 2.3 percent higher than last year's median price of $152,500.
Higher mortgage rates already are starting to temper buyer interest, according to the number of mortgage applications collected by the Mortgage Bankers Association of America.
The MBA seasonally adjusted purchase index decreased to 271.0 in the week ended Aug. 25 from 271.8 a week earlier, suggesting fewer people are looking for financing to purchase a new home. The week before that the index stood at 277.5. The MBA launched the index at 100 during the week of March 16, 1990. 
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Commerce Department
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