- The Washington Times - Wednesday, August 30, 2000

New-home sales last month soared by 14.7 percent the biggest jump in more than seven years and analysts predicted the market would remain buoyant if mortgage interest rates stay below 8 percent.

The spring tumble in the housing market appeared to come to an abrupt end last month. A report from the Commerce Department yesterday showed double-digit increases in new-home sales in nearly every region of the country that lifted total sales to a 944,000 annual rate.

New-home prices also rose briskly. The median sales price, where half the homes sold for more and half for less, surged 3.8 percent to $166,100.

The revival last month follows a steep drop in new-home sales of 7.1 percent in June. And sales of older homes did not fare as well last month. The National Association of Realtors reported last week that sales of existing homes dropped nearly 10 percent.

Ed Yardeni, chief economist at Deutsche Banc Alex. Brown in New York, said the strength of yesterday's report was surprising, but should not be overemphasized, since sales figures swing widely from month to month.

"Housing demand will remain at high levels," he said, "just not as high as the record years of 1998 and 1999."

Robert Mitchell, a home builder from Rockville, Md., and president of the National Association of Home Builders, agreed.

"Our builder surveys in July indicated that housing market conditions were stabilizing as interest rates drifted downward," he said. The construction association is expecting sales this summer to be only modestly above the second quarter rate of 858,000.

While 2000 still should be one of the strongest years in U.S. housing history, he said, home builders have been gradually paring construction plans in light of the higher interest rates imposed by the Federal Reserve and a leveling off of home sales.

Some economists see danger in last month's revival of the housing market, however, especially since interest rates this month have dropped below 8 percent lower than the 8.15 percent average in July. The average 30-year rate has dropped dramatically from the five-year high of 8.64 percent set in May.

"Forget the slowdown. Households have shrugged off their spring malaise and nothing is safe," said Joel Naroff of Naroff Economic Advisers in Holland, Pa. "With mortgage rates below 8 percent and consumer confidence hanging in near record levels, home sales should remain robust."

Rising incomes, brimming consumer confidence and record levels of employment have bolstered the buying mood of the public. That showed last month not only in home sales but in spending on everything from vacations to new cars.

Mr. Naroff believes the consumer rebound poses a problem for the Fed, which sought to slow growth in home sales and consumer spending with the 1.75 percentage points of rate increases it imposed since June 1999.

"When the housing market began to weaken, it was viewed as a signal that the economy was beginning to slow," he said. "That might have been the case in the spring, but it is not the situation anymore.

"The Fed members may be deluding themselves in thinking that there has been a softening in the economy," he said. "The threat that today's [report] raises is that we are off and running and growth may jump past the 5 percent level again."

Other economists say the Fed has reason to be optimistic that the economy can continue growing strongly without igniting inflation. A recent upsurge in productivity enables businesses to produce more using fewer workers.

That prevents the strain on the tight labor market that the Fed fears, said L. Douglas Lee of Economics from Washington. He estimates that Fed members are now willing to tolerate growth as rapid as 4.5 percent a year a growth rate that would permit the lingering strength seen in housing and consumer spending.

A survey of bank loan officers by the Fed this month confirmed that, even with the decline in mortgage rates, demand for mortgages continues to weaken to levels that are acceptable to the Fed, he said.

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