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New-home sales hit record
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December 2, 1999: 3:26 p.m. ET
Sales jump 16.3% in October, soaring past estimates of much smaller gain
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NEW YORK (CNNfn) - Sales of new homes surged 16.3 percent in October to a record level, despite a continuing climb in mortgage rates, the Commerce Department reported Thursday.
New-home sales jumped to 986,000 units on a seasonally adjusted annualized basis, compared with a consensus estimate of 858,000 units by analysts polled by Reuters.
It was the biggest jump in new-home sales since a 16.7 percent increase in April 1993.
The government said new-home sales dropped 8.1 percent to a revised 848,000 in September, when Hurricane Floyd hit the Northeast. The government originally reported a sales pace of 811,000 units for September.
The numbers had little effect on bond prices, which are often sensitive to news of big fluctuations in economic data.
The benchmark 30-year Treasury slipped 5/32 of a point in price for a yield of 6.31 percent in mid-afternoon trading, compared with a yield of 6.29 percent prior to the 10 a.m. ET report.
The upswing in new-home sales appears at odds with Monday’s report of a drop in existing-home sales. Buyers of new homes, however, spend far less than buyers of older homes.
Analysts said Thursday’s report indicates strong consumer confidence in the economy, even as interest rates continue to rise.
"The strength of the job markets and the rising trend in incomes especially in real terms is the real platform behind the elevated level of consumer spirits,” said William Sullivan, money market economist at Morgan Stanley Dean Witter. "You throw in widespread credit availability in a booming equity market and we can understand why housing is strong here as 1999 comes to a close.”
The Federal Reserve will certainly take note of the jump in new-home sales. The Fed has been maintaining a tightening policy toward the economy in an effort to head off inflation amid strong consumption and low unemployment.
"Housing is the one key sector that is supposed to be interest-rate sensitive, but at least so far, rates have not risen enough to cause a major retrenchment," said Joel Naroff, an economic consultant.
Sullivan told CNNfn that the Fed’s actions have had little effect on consumption, and that the board is unlikely to vote for another interest rate hike at this month’s FOMC meeting.
"Policy actions work with a lag,” Sullivan said. "With that in mind, we do not look for any changes in policy at this month’s FOMC meeting, but early next year, it’s a different story.” 
-- from staff and wire reports
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Commerce Department
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