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New home sales plunge
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October 29, 1999: 1:13 p.m. ET
September sales drop 12.8% to 811,000, lowest since December '97
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NEW YORK (CNNfn) - Sales of new homes plunged 12.8 percent in September -- after reaching their second-highest pace ever in August -- as rising mortgage rates began to temper demand, the government reported Friday.
The report confirmed what many analysts and economists had already anticipated -- that two interest rate rises by the Federal Reserve, a pickup in bond yields and a corresponding rise in mortgage rates have taken the steam out of the red-hot U.S. housing market.
"Higher mortgage rates that we have witnessed over the last six months are starting to temper demand for the housing sector," said Stan Shipley, a senior economist at Merrill Lynch.
Stocks and bonds surged after the report as investors concluded the economy may be slowing from its torrid third-quarter pace. That matched comments from Fed Chairman Greenspan, who said Thursday higher longer term interest rates were working to dampen the economy.
Stocks, bonds gain
The Dow Jones industrials rose more than 1 percent, while the 30-year Treasury extended its gains, pushing the yield, which moves inversely to the price, down to 6.16 percent from 6.25 percent.
The number of new single-family homes sold fell to a seasonally adjusted annual rate of 811,000 units in September, down from August's revised rate of 930,000, the Commerce Department said. August's rate originally was reported as 983,000. Analysts polled by Reuters had expected sales to drop to a 948,000 annual rate. The September pace was the slowest since the 791,000 level of December 1997.
"While some of the decline was related to the effects of Hurricane Floyd, the fact that all four regions fell suggests that higher mortgage rates are also having a constraining effect," said Steven Wood, a senior economist at Bank of America Securities in San Francisco.
September sales fell 11.3 percent in the South to a 345,000 rate, partially the result of Hurricane Floyd keeping individuals off the house-hunting circuit. It was lowest level in that region since May 1997, Commerce said.
For economists and investors, the numbers seemed to say the same thing: Higher mortgage rates are keeping buyers away.
And mortgage rates continued their upward trend this week, mortgage firm Freddie Mac reported Thursday. The rate on a 30-year, fixed-rate mortgage averaged 7.96 percent for the week ending Oct. 29, up from 7.93 percent last week and more than a full point ahead of a year earlier, when the 30-year fixed rate was pegged at 6.83 percent.
Past its peak?
What's more, the inventory of new homes for sale rose to a 4.9-month supply in September, the highest since a five-month supply recorded in December 1996, Commerce said. The number of homes for sale rose to 314,000 from 308,000 in August, suggesting growing supply.
Across the rest of the land, new home sales fell 14.8 percent in the West to 213,000, 14.2 percent in the Midwest to 175,000, and 8.1 percent in the Northeast to 79,000.
To be sure, "it would be premature to argue this is the start of a new, hyper-weak trend in home sales," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Nonetheless, these numbers do send an unambiguous signal that the housing market is now past its peak."
The median price of new homes increased 4 percent in September to $160,000, matching a record set in April, from August's $153,900. The average price rose to a record $196,900 from $192,400 the previous month.
Despite the surprise sales drop, many economists expect new home sales to finish the year at another record. The record monthly sales rate is 985,000, reached last November.
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Commerce Department
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