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New home sales soar 9.2%
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June 2, 1999: 12:29 p.m. ET
April sales surge to 978,000 level as buyers rush to beat mortgage rate hikes
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NEW YORK (CNNfn) - Sales of new homes soared 9.2 percent in April from March, the U.S. Commerce Department reported Wednesday, another sign of an economy so robust that the Federal Reserve may be compelled to raise interest rates.
Sales of new single-family homes surged to a seasonally adjusted annual rate of 978,000, well above the 890,000 expected by analysts. It was the highest annual rate since November, when new homes sales reached 985,000 units. The rate for March was revised down to 896,000 from an originally reported 909,000.
The surge in sales reflected a consumer rush to sign on the dotted line before mortgage rates rise even higher, said Carl Weinberg, chief economist of Valhalla, N.Y.-based High Frequency Economics. It also provided yet another sign to financial markets that the economy may need to be tempered with an increase in short-term lending rates.
"The perception is that rates are going up, and people are lining up to buy homes because of that," Weinberg said. "It's not a matter of if, but when the Fed raises interest rates, and that's going to have some effect on spending patterns."
Locking in now
The results countered other recent reports indicating declines in housing and construction spending.
The National Association of Realtors last week reported that existing-home sales declined 3.3 percent in April. The Commerce Department reported Tuesday that construction spending fell 2.4 percent in April, the biggest drop in more than five years.
Nonetheless, both the stock and bond markets took the news on the chin. The Dow Jones Industrial Average fell more than 100 points within minutes of the report's release, while the benchmark 30-year bond's yield rose to 5.94 percent, its highest in a year.
That's because of expectations that the Federal Reserve will have to raise interest rates to ward off inflation, analysts said. At their May 18 meeting, Fed policy-makers signaled they're ready to raise rates if economic growth doesn't slow and inflation accelerates. The rate-setting Federal Open Market Committee next meets June 29-30.
Bond yields in particular have risen substantially as a result of that perception, climbing close to the 6 percent level in recent weeks. Mortgage rates, which are directly linked to long-term bond yields, have followed, reaching 7.23 percent in the week ended May 28, after holding below 7 percent through the April. In October, the average rate fell to a three-decade low 6.49 percent.
Regional breakdown
On a regional basis, sales in the South rose 7.5 percent to a 429,000-unit annual rate. In the Midwest, sales rose 33.5 percent to a record 211,000 rate. In the Northeast, new home sales rose 17.1 percent to an 89,000 rate, the highest in that region in five months. Sales in the West were the exception in April, falling 5.3 percent to a 249,000 rate.
The overall strong sales depleted inventories of new homes. Inventories fell to a 3.7-month supply, matching the record low set in November, from a 4.1-month supply in March. The number of new homes for sale was unchanged at 301,000.
And it all happened as prices for new homes surged, the Commerce Department said. The median sale price of a new home sold in April was $159,500, up 3 percent from $154,800 in March. 
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