Sales of new homes up 9.2% in April. Unexpected surge could spur
reserve Board to raise interest rates.
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Thursday June 3 12:52 AM ET
Surge In U.S. Home Sales Jolts Markets
By Glenn Somerville
WASHINGTON (Reuters) - A surprising surge in new-home sales during April to the second fastest rate on record sent house prices soaring as buyers rushed to lock in cheap mortgages, a government report said Wednesday.
The fresh sign of robust consumer activity jolted financial markets. Stock and bond prices tumbled on renewed fears that the Federal Reserve was more likely to boost interest rates to cool the economic pace, but bargain-hunting by investors late in the day restored some of the losses.
The Commerce Department said sales of single-family homes shot up 9.2 percent during April to a seasonally adjusted annual rate of 978,000 -- second only to the record 985,000-unit rate set last November and sharply contrary to Wall Street economists' forecasts for weaker sales.
''It certainly complicates the proposition that a cooling-off in the housing sector has begun,'' said economist David Seiders of the National Association of Home Builders. He noted the supply of new homes on the market again matched the record low 3.7 months' worth set last November.
Every region of the country except the West posted higher sales in April. Sizzling demand drove the average sales price for a new home sharply higher to a record $193,100 in April from $186,300 in March.
Analysts said escalating prices were worrisome since it heightened chances that U.S. central bank policymakers would feel compelled to cool inflation pressures with a dose of higher interest rates.
Economist David Orr of First Union Corp. (NYSE:FTU - news) in Charlotte, N.C. said the Fed would be on the lookout for signs that homebuyers may be starting to bid up prices in a way that could set off inflation.
''Nothing changes consumers' expectations faster than what happens to the price of their house, or the houses in their neighborhoods,'' Orr said.
Bond prices tumbled after the home-sales report was issued but recovered to end down only fractionally. The yield on the bellwether 30-year U.S. Treasury bond improved slightly to 5.93 percent from Tuesday's close of 5.94 percent.
Share prices on the New York Stock Exchange dropped as much as 130 points but closed down 18.37 at 10,577.89. Prices had softened before an address in Boston by Fed Chairman Alan Greenspan but traders were relieved when the U.S. central bank chief made no reference to the outlook for interest rates.
The housing data complemented other recent reports, including Tuesday's National Association of Purchasing Management index that showed manufacturing gathering steam in May and offered no sign of economic slowdown on the horizon.
Greenspan said recently that consumers were being emboldened by rising new-home prices and by stock-market gains to keep spending briskly. Consumer spending has been the rocket fuel behind the booming U.S. expansion, now in its ninth year of unbroken growth.
The spending spree set U.S. new-car sales on target for a record year. Major automakers said Wednesday that, aside from General Motors Corp. (NYSE:GM - news) which reported declines, sales of most producers were running 5 percent higher during May than last year, reaching a seasonally adjusted annual rate of more than 17 million units.
Industry executives who had expected sales to cool down credited strong job growth and low inflation for putting automakers on the road to their best sales year ever in 1999. Ford Motor Co. (NYSE:F - news), DaimlerChrysler AG (NYSE:DAJ - news), Toyota Motor Corp. (Nasdaq:TOYOY - news), Honda Motor Corp., Nissan Motor Co. Ltd., and Volkswagen AG all reported strong sales rises last month.
April's sharp rise in new-home sales followed a revised 0.8 percent decline in March sales to 896,000. Previously, the department said March sales were at annual rate of 909,000.
Regionally, sales fell 5.3 percent to 249,000 in the West but they jumped 33.5 percent in the Midwest to a record 211,000 a year. Northeast sales climbed 17.1 percent to 89,000 and in the South they gained 7.5 percent in April to 429,000 a year.
Lending rates for 30-year mortgages dropped to an average 6.92 percent in April from 7.04 percent in March but have since moved up modestly, hitting 7.23 percent last week.
Analysts said the relatively cheap lending rates in April coupled with plentiful jobs were fostering rising incomes that gave consumers the confidence to undertake long-term financial commitments. Seiders said mortgage applications were strong in April, which likely means another strong sales month for new homes in May. |
