NEW YORK (CNNfn) - Sales of new homes rebounded in December after a lull in November, according to a government report released Wednesday, while a separate private industry report indicated the economy is on course for a strong showing -- more reason for the Federal Reserve to raise interest rates at the conclusion of its two-day policy meeting, according to analysts.|
New home sales rose 4.5 percent to a seasonally adjusted annual rate of 900,000 units in December, above both analysts' estimates of 895,000 units and the revised November decline of 6.3 percent to 861,000 units, the Commerce Department said. For the year, home sales climbed 2 percent to a record 904,000 units from 886,000 units in 1998.
"These data continue to show that the housing market remains resilient in the face of rising interest rates. This resiliency will make it more difficult for the (Federal Open Market Committee) to slow the economy," said Steven Wood, an economist with Banc of America Securities.
Indeed, the numbers rolled across computer screens as the Fed's policy makers wrap up their two-day meeting on interest rates, which most analysts and economists expect will result in at least a quarter-point increase in short-term lending rates. Higher rates tend to slow the economy by making borrowing more expensive for consumers and businesses.
Preston Martin, a former Fed vice chairman, told CNNfn that the Fed likely will raise rates several times this year to slow the economy's progress. Even with that, he said, the Fed is facing what he described as one of the most dangerous times for the economy since 1929, the infamous year of the U.S. stock market crash. (569KB WAV) (569KB AIFF)
The Fed already has raised rates three times since June to slow economic growth. Even with the rate increases, however, little evidence of slowing economic activity has surfaced. On Friday, the Labor Department reported the economy grew at a 5.8 percent pace in the fourth quarter, its strongest showing of the year. And consumers are on a tear, according to other reports, with little interest in keeping their money in the bank.
One sector of the economy that appeared to be flinching in the face of rising rates was the red-hot housing market. The Fed's three rate rises have spurred long-term bond yields to back up significantly in the past six months. Because bond rates are directly linked to mortgage rates, consumers are paying more to finance the purchase of a new or existing home.
Even so, "While sales are slightly below their peak levels of late 1998, this sector has hardly suffered a body blow from the run-up in long-term mortgage rates," said Sherry Cooper, chief economist of brokerage Nesbitt Burns Inc. "Until the housing sector slows significantly, it is far too premature to look for a broad-based slowing in the economy."
Rising mortgage rates
The benchmark 30-year fixed-rate mortgage rang in at an average weekly rate of 7.91 percent in December, compared with 7.74 percent a month earlier and 6.72 percent in December 1998, according to mortgage provider Freddie Mac.
Sales in the Northeast led the increase, rising 92.6 percent to a 104,000-unit annual rate. In the south, sales gained 7.1 to a 405,000 rate, while sales in the West increased 1.6 percent gain to a 255,000 annual pace. In the Midwest, sales declined 22.6 percent to a 137,000 annual rate.
The inventory of new homes for sale at the current sales pace -- a key gauge of consumer demand -- fell to a 4.4-month supply in December from 4.5 months' worth in November. The median price of a new home fell 5.4 percent in December to $160,900 from November's $170,000.
And the economy looks pretty robust down the road, according to the Conference Board's index of leading indicators, also released Wednesday.
The index, which aims to forecast the U.S. economy's progress six to nine months out, gained 0.4 percent to 108.7 in December -- just above expectations of a 0.3 percent rise -- from a 0.3 percent increase in October. The index stood at 100 in 1992.