New Home Sales Cool Off a Bit in August

New home sales fell a slight 0.4% in August but remained over 750,000 for the second straight month, the Commerce Department reported Tuesday, as buyers took advantage of lower interest rates.

Analysts had forecast a steeper slide in August sales from a double-digit gain in July, the largest advance in three years. They said the pace cannot be sustained but will remain healthy for the rest of the year.

Commerce said the new single-family homes were sold at a seasonally adjusted rate of 755,000 in August, a relatively small drop from July’s revised 758,000 rate, which was a 16.1% increase over June.

The Commerce report indicated that new home sales were stronger throughout the summer than previously thought. Not only was the July figure revised upward; so too were the May and June figures, both of which totaled 653,000 units.

“It appears that the new home market is steaming along,” said economist John A. Tuccillo of the National Assn. of Realtors. “What is noteworthy about the August numbers is not that they have gone down, but that sales remained at an extremely high level.”

Existing Home Sales Up

The sales improvement was attributed by analysts to fixed-rate mortgages, which dropped from an 11.22% peak in March to 9.81% at the end of August.

The lower rates also improved sales of existing homes, which, according to the National Assn. of Realtors, rose 3.3% in August to 3.44 million units.

However, mortgage rates had climbed back up to 10.16% by last Friday, according to a survey by the Federal Home Loan Mortgage Corp., and analysts said the increase will affect future sales.

“It will be difficult to maintain this (new home sales) rate particularly since mortgage rates have increased,” said Michael Carliner, an economist at the National Assn. of Home Builders.

Richard Peach, an economist at the Mortgage Bankers Assn., agreed that the current pace is not sustainable but said a sales range of 680,000 to 700,000 “still would be a very healthy pace for the new home market.”

Mark Obrinsky, an economist at the Federal National Mortgage Assn., also said the summer sales, which lowered inventories from an eight-month backlog in July to a six-month supply currently, should result in increased single-family housing starts this fall.

Despite the recent boom, sales for the first eight months were down 2.7% from the same period in 1988 because of the higher interest rates earlier in the year as the Federal Reserve tightened credit to slow inflation.

Median, Average Prices Up

Sales of new homes in the Northeast, which had jumped 50% to 108,000 units in July, slipped 0.9% in August to a seasonally adjusted annual rate of 107,000 units.

Sales in the Midwest were down 27.9% to 93,000 units after rising 26.7% to 129,00 units a month earlier. Sales in the South rose 6.2% to 310,000 and were up 6.6% in the West to 244,000 units.

The Commerce Department report said the median price of a new home was $122,900 in August, up 6.0% from $116,000 in July. The median is the point where half of the homes sold for more and half for less.

The average price of a new home rose 14.6% to $162,300.