Weather, Rates Warm Sales of New Homes

Low mortgage rates and warm weather from El Nino helped push new-home sales to their biggest increase in more than four years in January, the Commerce Department said Tuesday. The gain is one in a string of strong economic numbers starting off the new year, but a forecasting index hints at weakness ahead.

Sales of new single-family homes jumped 10.3% to a seasonally adjusted annualized rate of 877,000, the department reported.

The increase, from an annualized rate of 795,000 in December, was the biggest since September 1993. The level matched November’s and was exceeded, in records stretching back to 1963, only by the 880,000 rate for March 1986.

“El Nino allowed the customers to get out and look at houses and the low mortgage rates enticed them to buy,” said economist Paul Taylor of America’s Community Bankers, a trade group for savings institutions.

Fixed-rate mortgages were the cheapest in four years in January, with the average rate just under 7%.

However, long-term interest rates rose this week to the highest level since mid-December, and that will eventually take some steam out of home sales, Taylor said. New-home sales for the full year will be down 5% to 6% from last year’s 19-year high of 803,000, he predicted.

And a second report foreshadows a moderation in the pace of economic activity generally this year. The Conference Board said its index of leading indicators was unchanged for the second consecutive month--after a scant 0.1% increase in November.

Economists had expected the index to rise 0.1% in January.

The Conference Board, a business research group, said in its report that the index, combined with the performance of two sister indicators, portrays a healthy but moderating economy and “low risk of a recession in 1998.”

But the flat results for two straight months “may be an indication that the full effect of the Asian crisis is far from realized,” said Christopher Low, senior economist at HSBC Securities.

January’s brisk new-home sales rate was powered by gains in the West, which saw an increase of 19% to an annualized rate of 238,000, and the South, up 13.1% to a rate of 405,000. Sales edged down 1.4% in the Northeast to a rate of 72,000 and 1.2% in the Midwest to 162,000.

The median price of a new home--the price at which half the homes sold for more and half sold for less--was $148,000 in January, up 2.1% from a year ago.

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New-Home Sales

Seasonally adjusted annual rate, in thousands of units:

Jan.: 877

Source: Commerce Department