11/25/2002 - Updated 03:34 PM ET
Sales of existing homes hit 6-month high
By Barbara Hagenbaugh, USA TODAY
WASHINGTON — Sales of previously owned homes jumped to their highest level in six months in October, the National Association of Realtors said Monday in a report that suggests housing, a driving force for economic growth, remains strong.
Boosted by extremely low interest rates, purchases of existing homes rose 6.1% to 5.77 million, on a seasonally adjusted annual basis, in October. That was up nearly 10% from October 2001 and was the highest level since April, the NAR said. Rates for a 30-year, fixed mortgage were below 6.5% from July through October, the lowest level in at least 31 years.
Rates have dipped even lower this month. Last week, the average 30-year rate was 6.03%.
"The strength in home sales is encouraging for an economy with an expansion that is only limping along," Economy.com housing analyst Celia Chen says.
"Housing will hold up long enough for other drivers of economic activity to kick in."
Not only do the actual transactions of home sales directly contribute to economic activity, but housing purchases also lead to increases in consumer spending as homeowners spruce up their new abodes with new furniture, appliances and decorations.
In more good news for the soft economy, the NAR said the median price of previously owned homes hit $159,600 in October, up 10% from a year ago. Increases in home values not only give sellers a bigger profit, they also increase household net worth, a trend that is believed to boost spending.
"The continued rise in home prices may inspire consumers to spend during the forthcoming Christmas period, stimulating the economy and driving economic growth in the New Year," says Matthew Ellis, an economist with Wachovia in Charlotte.
But despite the sharp gains, most economists, both at the Federal Reserve and in the private sector, dismiss fears that there is a housing bubble in the USA.
Fed Chairman Alan Greenspan has argued that several factors — increased immigration, lack of available land for building and low interest rates — will continue to prop up housing for years.
Private-sector economists do expect, however, that the housing market will soften slightly if the economy improves next year, as expected. That will likely lead to a moderate gain in mortgage rates.
Brian Wesbury, chief economist at Griffin Kubik Stephens and Thompson, says he expects 30-year mortgage rates will reach 7% by the third quarter of 2003.
"This is not enough to stop housing growth, especially as wealth continues to increase and the economy accelerates," he said. |
