
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, June 30, 1995                   TAG: 9506300043
SECTION: BUSINESS                    PAGE: A-11   EDITION: METRO 
SOURCE: Bloomberg Business News
DATELINE: WASHINGTON                                LENGTH: Medium

HOME SALES SURGE 19.9 PERCENT IN MAY

U.S. sales of new single-family homes surged a larger-than-expected 19.9 percent in May as lower mortgage rates made it easier for consumers to obtain financing.

The increase - the largest since January 1992 - helped send bond prices plunging in the United States and Europe. That's because the report suggests the Federal Reserve may refrain at a key policy meeting next week from lowering interest rates to bolster the economy.

``Mortgage rates have dropped down to levels not seen in a year, and potential new homeowners are coming off the sidelines,'' said Kevin Flanagan, an economist with Dean Witter Reynolds in New York. ``It would be tough for the Fed to consider easing any time soon.''

Underscoring the idea that the economy may be on the mend, the Commerce Department's housing report showed that states in the South, West, and Northeast all reported double-digit sales gains in May. In the Midwest, though, sales were unchanged from a month earlier.

The Commerce Department said Thursday that total sales increased to a seasonally adjusted annual sales rate of 722,000 - the highest since March 1994 - after falling a revised 1.5 percent in April. Initially, the government said April sales fell 2.7 percent.

``This is another bit of evidence that a floor has been put under the housing market as a result of declining interest rates,'' said Robert Dederick, an economic consultant at the Northern Trust Co. in Chicago.

Analysts at Stone & McCarthy Research Associates cautioned that the housing report tends to be volatile from month to month, and May's gains may be overstated. ``The data is so strong that it seems to be a bit suspicious,'' the Princeton, N.J.-based firm said.

Also contributing to the view that housing hasn't yet turned the corner: the Mortgage Bankers Association's market index of mortgage applications fell 1.8 percent last week, as fewer Americans applied to purchase new homes.

By region, new home sales advanced 31.0 percent in the South to 334,000 at an annual rate; increased 19.7 percent in the West to 207,000; rose 18.0 percent in the Northeast to 59,000; but held steady in the Midwest at 123,000.

The supply of homes for sale nationwide decreased 0.3 percent in May to an annual rate of 345,000, while the inventory of vacant homes fell to a 5.6-month supply - the lowest in a year - from 6.9 months in April.

by CNB