Econ--Bloomberg: "...the economy is cooling enough to keep Fed policy-makers from raising interest-rates further."
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quote.bloomberg.com
>>>Top Financial News
Wed, 02 Aug 2000, 5:26pm EDT
U.S. Economy: New Home Sales Fall to 2 1/2-Year Low (Update3)
By Siobhan Hughes
Washington, Aug. 2 (Bloomberg) -- Sales of new U.S. homes fell in June to the lowest level in 2 1/2 years as a rise in borrowing costs engineered by the Federal Reserve over the past year made it more expensive for people to buy.
Single-family home sales -- which declined in all regions except the western U.S. -- fell 3.7 percent in June to an annual rate of 829,000 units after falling to an 861,000-unit pace a month earlier, the Commerce Department said.
``Higher interest rates are really beginning to have an impact,'' said Joel Rassman, chief financial officer at Toll Brothers Inc., the largest U.S. luxury home builder based in Huntingdon Valley, Pennsylvania.
Stocks mostly gained after the report, which suggested the economy is cooling enough to keep Fed policy-makers from raising interest-rates further.
Boosting that optimism were comments by St. Louis Fed President William Poole that the economy is benefiting from ``low and stable inflation,'' giving the Fed room to experiment with faster growth than previously though possible.
``We have the luxury of being able to be patient about this,'' Poole said in an interview with Bloomberg News.
The Dow Jones Industrial Average rose 81 points, or 0.8 percent, to close at 10687.53 after the reports. The Nasdaq Composite Index fell 27 points, or 0.8 percent, to close at 3658.45, as investors bet technology companies would have slower profit growth this year. The government's 10-year note was little changed to yield 5.97 percent.
A separate report showed the Conference Board's index of leading economic indicators -- a gauge of economic performance over the next six to nine months -- was unchanged in June, the third straight month without an increase. The index fell 0.1 percent in May and was unchanged in April.
Mortgage Rates
The average rate on a 30-year fixed-rate mortgage in June was 8.23 percent, according to Freddie Mac, the No. 2 purchaser of U.S. mortgages. While down from the recent peak of 8.64 percent in mid-May, rates averaged 7.55 percent in June 1999. One-year adjustable rates breached 7 percent in June before reaching 7.32 percent in mid-July, the highest since 1991.
The June new home sales pace was the slowest since 793,000 units at an annual rate in December 1997, the Commerce Department figures showed.
Slow sales pushed the median price of a new home down 1.4 percent to $159,000 in June from $161,200 in May. The June price was the lowest since $154,900 in August 1999. Also, the supply of new homes for sale climbed to 4.9 months, the highest level since 5 months in December 1996.
Consumer Confidence
Even with three straight monthly declines, new home sales are on track to finish the year at 885,000 units, compared with last year's record of 907,000 in 1999. This year's projected sales rate would be close to the 886,000 homes sold in 1998 which was the second-best on record.
``We don't expect home sales to weaken much going forward,'' as consumers stay confident and unemployment is near a 30-year low, Rassman said.
Consumer confidence in July was close to the record-high reached in May and January. The nation's June unemployment rate was 4 percent, close to a 30-year low, and a Commerce Department report yesterday showed June incomes grew 0.4 percent.
Fed policy-makers have raised the overnight bank lending rate six times since June of last year in a bid to slow the economy and keep inflation from rising. They next meet Aug. 22 and with housing, as well as consumer spending and manufacturing, showing signs of slowing, policy-makers could opt to hold the line.
Yesterday, the National Association of Purchasing Management's index of manufacturing activity held at 51.8 in July, the lowest level since January 1999. New orders to factories posted the first drop in 19 months.
Consumer spending slowed to a 3 percent annual rate in the second quarter, after increasing in the first three months of the year at the strongest pace in 17 years, government figures on gross domestic product showed last week.<<< |
