Home sales drop a relief?
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May 31, 2000: 4:51 p.m. ET
Economists don't count on any slowdown keeping back the Fed
By Staff Writer Rob Lenihan
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NEW YORK (CNNfn) - Housing news came knocking on Wednesday and experts are hoping it will stop the economy from rocking. They're hoping, but not betting the ranch on those hopes.
New home sales fell nearly 6 percent in April, more than twice the slide that had been expected, as higher mortgage rates slowed home buying. At the same time, the Mortgage Bankers Association of America reported total U.S. mortgage applications fell by 8.4 percent on an unadjusted basis for the week ended May 26. Refinancings fell nearly 11 percent on both a seasonally adjusted and unadjusted basis during the same week.
Also, adjustable rate mortgage activity fell 16 percent in the week on an unadjusted basis and 15 percent on seasonally adjusted basis. And the Conference Board reported that its index of leading economic indicators fell 0.1 percentage point to 106.0, as opposed to a forecast of a 0.1 percentage point rise for the period. The measure is designed to gauge economic activity six months in the future.
Will the falling numbers be enough to keep Fed Chairman Alan Greenspan from huffing and puffing and raising interest rates? Many economists don't think so.
More work to do?
The real estate downturn put the stock market in a holding pattern Wednesday afternoon as investors considered their next move.
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Michael Moran, chief economist for Daiwa Securities America Inc., said in a statement the monthly change in home sales is not the proper focus, noting that sales climbed to the second highest level on record in March.
"Mortgage rates have increased an additional 35 basis points from their average in the first quarter," Moran said, "and this additional increase may have a dampening effect on the months ahead.
"However," he continued, "given the mild reaction to higher rates thus far, the latest shift does not offer excessive promise. Additional figures ... will have an important bearing and timing on the policy change, but the housing figures suggest the Fed has more work to do."
Speaking on CNNfn, Orawin Velz, senior economist for the Federal National Mortgage Association, or Fannie Mae, said the sales slowdown was a "welcoming relief."
"When we see a slow down," she said, "we would expect that the Fed would not be as aggressive in hiking rates so the would not put the economy in jeopardy in terms of ending an expansion."
Getting Greenspanned
Velz acknowledged that some prospective homebuyers may be priced out of the market, but suggested consumers could opt for an adjustable rate mortgage rather than a 30-year fixed rate mortgage.
"These will allow you to pay the mortgage an initially low rate," she said, "and by the time you want to move you can be out of the higher rate by then."
Lucille Flood of Flood Real Estate in New York said on CNNfn that homes remain a solid investment.
"The worst that can happen," she said, "is that the market levels off and you don't make this huge score when you sell. But you still get your money back."
Stephen Roulac, chief executive officer of the Roulac Group, a real estate consulting firm in San Rafael, Calif., said some sections of the economy are "getting Greenspanned," as the Fed chair's plan to cool things down goes into effect. Up until recently, he said, buyers had been stretching to buy homes while sellers had been pushing prices to the max.
"In a market like this," he said, "where people are a little more cautious, they have more housing choices than they did a few months ago."
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