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U.S. home sales dip
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March 26, 2001: 11:40 a.m. ET
But lower mortgage rates bolster sales strength despite slowing economy
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NEW YORK (CNNfn) - Sales of existing homes edged lower in the United States last month and new-home sales also dipped, reports said Monday, but the numbers were in line with, or better than, forecasts by Wall Street economists.
Existing home sales fell 0.4 percent to an annual rate of about 5.18 million, according to a report the National Association of Realtors. That decline was a bit smaller than the drop to a rate of about 5 million forecast by economists, according to Briefing.com. The overall sales rate stayed at relatively high levels thanks to low mortgage rates.
 Separately, sales of new homes fell for the second straight month, dipping 2.4 percent to an annual rate of 911,000 from 933,000 the previous month, according to a report from the Census Bureau, which is part of the Commerce Department. Even with the decrease, the annual rate of home sales was above last year's total of 903,000.
While the plunging stock market and economic slowdown have hurt consumer confidence, analysts said home sales have not fallen as much as would be expected, thanks to declining mortgage rates.
Last week, the national average for 30-year mortgages dipped to 6.89 percent, far below the peak of 8.64 percent hit last May, when the Federal Reserve pushed interest rates up for a sixth straight time in an effort to slow what was then red-hot economic growth that was raising concerns about inflation.
David Orr, chief economist for First Union, said the current market for both new and existing home sales is helping to make up for the growing weakness in other segments of the economy.
"I think both these numbers are showing the housing market is continuing to provide a cushion for the economy, partly offsetting the severe weakness in manufacturing and the stock market," he said. "It's a high plateau, and that's a good cushion, even if it's not growing."
People buying new homes often have to buy appliances or furnishings or other goods, which helps economic activity. The new home sales also spur construction spending and employment, which helps contribute to the overall economy.
He said that while the numbers are down a bit, they still represent very good strength in the market by historical standards. For example, the 5.45 annual sales rate for existing homes hit in June 1999, was a record for the NAR's index.
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"As long as the new home sales stay over 800,000, by any historical standard this is exceptionally good activity," he said. "That's one of the conundrums you get with new home sales or car sales: Getting back to 'normal' involves a sometimes large decline."
The Fed switched course at the beginning of this year and started cutting interest rates, delivering a third half-percentage point reduction last week, as it attempted to stave off a full-blown recession. Further rate cuts are expected, but Orr said he's not sure if even the lower rates will be enough to lift or even maintain sales levels at current levels.
"The offset is the unemployment rate beginning to go up," he said. "The last time the Fed cut was cutting rates, when you had both the unemployment rate and the mortgage rates going down together in 1998, that's when you got the peak."
But the chief economist for the National Association of Realtors said that the lower rates are bringing more buyers to the housing market, despite recent layoffs and rising unemployment.
"The interest rate on a 30-year, fixed-rate mortgage has dropped one-and-a quarter percentage points in the last year -- that means there are about 300,000 additional households who can afford to buy a home today that couldn't qualify for a loan a year ago," said David Lereah. "Although the slowing economy is causing a little drag on the market, consumers who are confident about their own future are going ahead with big-ticket purchases like homes and cars."
The lower rates are helping to support prices. The Department of Commerce reports that median new home prices rose to $167,000 in February, just $100 above the January median price but about 3 percent higher than year-ago prices. Median price means that half the new homes sold go for more money and half go for less.
The NAR's median existing home sales prices reached $138,800 in the most recent month, which was just less than 4 percent above year ago levels, and up about 1 percent from the $137,100 median price in January.
-- from staff and wire reports 
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