Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, December 6, 1994 TAG: 9412060077
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
SOURCE: Associated Press|
DATELINE: WASHINGTON LENGTH: Medium
``What is surprising is that despite these surging mortgage rates, the housing markets are holding steady,'' said David Lereah, an economist with the Mortgage Bankers of America.
Lereah said the explanation apparently is that higher borrowing costs are being offset by growth in jobs and incomes and a switch from 30-year, fixed-rate loans to less expensive adjustable-rate mortgages.
Sales rose 1.3 percent in October to a seasonally adjusted annual rate of 726,000, the Commerce Department reported Monday. That was the highest since 817,000 last December, when the housing sector is believed to have reached its current peak.
Many analysts had predicted a decline to less than 700,000.
The report also showed much stronger sales in September than originally estimated. It revised September sales to a 717,000 rate, up from 703,000.
``It's very clear that the economy is strong,'' Lereah said. ``The housing market is one sector that's demonstrating that. If these higher interest rates can't slow housing down, don't expect other less-interest-sensitive sectors to slow any time soon.''
Thirty-year mortgage rates have risen steadily this year as the Federal Reserve engineered increases in short-term interest rates six times in attempts to slow the economy and keep inflation under control.
But Lereah said implicit in the continuing strength in the housing sector is more boosts, with 30-year mortgage rates reaching 10 percent in mid-1995.
Rates on 30-year mortgages, which averaged less than 7 percent in early February, when the Fed first acted, had risen to 8.93 percent in October and stood at 9.23 percent last week. Shortly after the government released the housing report, House Democratic Leader Richard A. Gephardt of Missouri urged the Fed to be cautious in assessing the need for further rate hikes.
``While the economy is certainly doing better, growth is still uneven at best,'' he said in a letter to Fed Chairman Alan Greenspan. ``Many regions are still weak, despite the overall recovery. ...
``Moreover, the Fed has already done a lot to tighten the economy,'' he added. ``To take another drastic measure before even gauging the results of these recent rate hikes could cause needless economic distress for millions of workers.''
The government estimated a seasonally adjusted 330,000 new homes were for sale in October, the highest since 335,000 in October 1990. It represented a supply of 5.5 months at the current sales rate, down slightly from 5.6 months in September.
The median price edged up to $130,500 in October, compared with $129,300 a month earlier and $125,000 a year earlier. The median is the midpoint, meaning that half of the homes cost more and half cost less.
by CNB