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U.S. home sales jump
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April 25, 2001: 12:06 p.m. ET
Sales strength in March surprises analysts; durable goods orders also rise
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NEW YORK (CNNfn) - Sales of new and existing homes rose unexpectedly in the United States in March, and durable-goods orders also surged, according to reports Wednesday, but economists warned the picture of the U.S. economy is still gloomy.
Sales of new homes rose after two straight months of declines, jumping 4.2 percent to an annual rate of 1.02 million units -- the highest rate ever -- from a rate of 911,000 units in February, according to a report from the Census Bureau, which is part of the Commerce Department. Economists on average expected the rate to fall to 910,000 units, according to Briefing.com.
Existing home sales rose 4.8 percent to an annual rate of about 5.44 million -- their second-highest level ever -- from a revised 5.19 million in February, according to a report by the National Association of Realtors (NAR). Economists on average expected the rate to fall to 5.1 million.
"Clearly, mortgage interest rates that are near 30-year lows are bringing many buyers into the market at the beginning of the traditional home-buying season," NAR chief economist David Lereah said, "and we're counting on the Federal Reserve to continue its accommodative interest rate policy to keep housing strong."
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 CNNfn's Lisa Leiter reports from Chicago on the housing market. |
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The report comes after the Federal Reserve last week cut interest rates for the fourth time this year in an effort to prevent the slowing economy from slipping into recession.
Fixed mortgage rates aren't directly tied to the Fed rate like adjustable-rate loans are, but they can rise or fall in sympathy as lenders compete for business.
The national average commitment rate for 30-year, conventional, fixed-rate mortgages fell in the past year, keeping home sales relatively strong and offering a ray of sunshine in an otherwise gloomy U.S. economic picture.
But fixed rates have risen in recent weeks, and some economists think all the Fed's interest-rate cuts -- including last week's -- have already been priced into mortgage rates. The number of people applying for mortgages has flattened recently, and home sales will flatten, too, economists say.
"Housing fundamentals are deteriorating," said Steven Wood, economist with Financial Oxygen. "Mortgage rates have been flat since the beginning of the year. Job creation and income growth has slowed. Equity markets have plunged over the past year. And consumer confidence has tumbled. Moreover, mortgage applications have trailed off. All of these suggest that home sales should weaken over the next several months."
Transportation lifts durable goods
Meanwhile, the U.S. Commerce Department said durable goods orders rose 3 percent to $205.1 billion, the biggest gain since November of last year, after falling slightly in February. Wall Street economists had forecast a much smaller 0.5-percent increase.
However, durable goods orders often swing widely from month to month, and the gains in March were almost exclusively in the volatile transportation sector.
Excluding transportation gains, orders for durable goods actually fell 1.8 percent, the biggest drop since last December. Analysts had expected only a 0.4-percent dip in the non-transportation data.
The defense industry also padded the overall data. Taking out defense-industry gains, orders rose only 0.9 percent.
"A lot of the main components are still showing weakness," said Robert Brusca, chief economist at Ecobest Consulting. "We still have orders declining, and order backlogs haven't built up to any particular degree. This is the picture of a still-weak manufacturing sector."
The overall gain was the first since December for durable goods -- items such as cars, refrigerators and washing machines expected to last at least three years -- the Commerce Department said. In January and February, durable-goods orders fell by 7.3 percent and a revised 0.3 percent.
The U.S. economic slowdown has hit the manufacturing sector hardest, causing companies to cut production sharply, trim jobs and reduce work hours to cope with flagging demand.
The weakness in the orders data sends a message to the Federal Reserve, Brusca said.
"This shows the Fed rate cut was really quite needed," Brusca said, "and would probably suggest the Fed might have more work to do to hold things together." 
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