Sales of New Homes Surge to a 10-Year High

Sales of new single-family homes surged to a 10-year high in August as a rise in Americans’ incomes helped overcome the dampening effects of higher mortgage rates, according to government figures released Monday.

New-home sales unexpectedly jumped 4.7% in August to an annual rate of 832,000 after rising a revised 8.3% in July, the Commerce Department said. Gains in the Midwest and South offset weakness in Western and Northeastern states and pushed the monthly sales rate to its highest level since April 1986.

Economists had been predicting sales would slump more than 4% in August because 30-year mortgage rates climbed back above 8% that month, from below 7% in February.

For home builders, though, that analysis was off the mark.

“We are in a relatively affordable range,” said Ira Norris, president of Inco Homes in Upland. “Buyers are really not severely affected psychologically if the mortgage rate runs at 9% or below.”

If this strength Norris and other home builders are counting on continues in the months ahead, 1996 may set a yearly record, topping 1977 sales of 819,000 new homes.

Another explanation for the surprising strength came from a second Commerce Department report released Monday, showing that Americans’ personal incomes rose 0.6% in August, rebounding from a 0.1% increase in July. That put incomes 5.9% higher for the last 12 months.

Gains in employment and consumer confidence are also feeding the housing strength, analysts said. “Right now it’s the economy versus interest rates, and the economy is winning,” said David Lereah, chief economist at the Mortgage Bankers’ Assn. in Washington.

Indeed, home sales have topped the 700,000 rate for the last eight months, the first such string of advances since late 1985 and early 1986. As a result, they are 15% above those of the same period a year ago. They totaled 667,000 in all of 1995.

Consumer spending accounts for two-thirds of the nation’s economic activity. It rose at a 3.4% annual rate in the April-June quarter, helping to boost economic growth by a 4.7% rate.

However, some analysts were not impressed.

Economist Bruce Steinberg of Merrill Lynch & Co. said that when adjusted for inflation, spending rose 0.5% in August after falling 0.6% in June and remaining unchanged in July.

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New-Home Sales

Seasonally adjusted annual rate, thousands of units:

August 1996: 832

Source: Commerce Department

Personal Spending

In trillions of dollars, seasonally adjusted annual rate:

August 1996: $5.17

Source: Commerce Department

Personal Income

In trillions of dollars, seasonally adjusted annual rate:

August 1996: $6.50

Source: Commerce Department