New-Home Sales Surge 4.2% in January

WASHINGTON —  Despite the blizzard and consumer concerns over the economy, sales of new homes shot up 4.2% in January, the Commerce Department said Monday. It was the second straight gain and came as mortgage rates dipped to a two-year low.

“I think that . . . a lot of people in January decided to take advantage of mortgage rates that in many parts of the country were below 7%,” economist David Berson of the Federal National Mortgage Assn. said.

In the West--dominated by California--sales rose 11.6% to 193,000 at a seasonally adjusted annual rate, recovering from a 10.4% drop a month earlier to 173,000. Sales also advanced in the Midwest and South, but plunged 40.5% in the Northeast, which bore the brunt of the snowstorms. The decline was the steepest in nine years.

Overall, sales of single-family homes came to an adjusted annual rate of 693,000, up from 665,000 in December, when they rose 0.5%, the Commerce Department said.

The report combines data for December and January, which had been postponed because of the blizzard and the partial government shutdown.

For all of 1995, sales slipped 0.9%, to 664,000 from 670,000 in 1994. That was the lowest level since the 610,000 for 1992, which came shortly after the economy emerged from recession.

The decline for the year was due in part to declining sales from August through November. Many analysts said the drop reflects worries over job and income growth and high levels of consumer debt that offset the effect that would have been expected from falling mortgage rates.

In January, 30-year, fixed-rate mortgages averaged 7.03%, down from more than 9% a year earlier and the lowest since February 1994. That translates into a savings of $140 a month on a $100,000 mortgage.

Mortgage rates have been edging up since then. They averaged 7.38% on Thursday--before the government reported a dramatic improvement in the labor market that sent long-term rates higher.

“The housing sector is extremely sensitive to upticks in mortgage rates, and this can certainly inhibit activity going forward,” said economist David Lereah of the Mortgage Bankers Assn.

But Lereah expressed skepticism about the size of the increase in new-home sales, noting that sales of existing homes--more than 80% of the total--fell in January for the fourth straight month.

And David F. Seiders, an economist with the National Assn. of Home Builders, was troubled by the number of unsold new homes. That situation, he said, could cause builders to cut back or lower profit margins in an attempt to reduce large inventories.

The seasonally adjusted estimate of new houses for sale at the end of January was 381,000, representing a supply of 6.7 months at the current sales rate. It is the largest since January 1980, when the figure stood at 390,000.

The median price of a new home was $128,900, down from $136,000 in December but above the $127,900 of a year earlier. “Median” means that half of the homes cost more and half cost less.

Sales shot up 18.1% in January in the Midwest to a 150,000 annual rate after having dipped 0.8% in December to 127,000. The January gain is the largest since sales jumped 25.2% in October 1994. But they fell to a 47,000 annual rate in the Northeast, the steepest drop since a 50.7% decline in December 1987.