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Fri, Feb 02, 2001 EST
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New-Home Sales Post Biggest Increase In Seven Years
By Martin Crutsinger   Associated Press
WASHINGTON — Sales of new homes, defying the slowdown in other parts of the economy, posted a sizable 13.4 percent increase in December, the biggest monthly gain in more than seven years.

The Commerce Department reported Wednesday that sales of new single-family homes rebounded last month following a bigger than previously reported 7.1 percent drop in November sales.

The December strength caught economists by surprise. They had been forecasting that the general slowdown in the overall economy would translate into further declines in home sales.

With the December rebound, sales for all of 2000 totaled 898,000, a drop of 1 percent from the all-time high for new-home sales of 907,000 in 1999.

Even with the decline, the 2000 sales level was still second-highest on record. Home builders have benefited from strong economic growth over the past four years, which has pushed unemployment to the lowest level in three decades and spurred a boom in purchases of big-ticket items such as homes.

However, the government also reported Wednesday that overall economic growth slowed to an annual rate of just 1.4 percent in the final three months of last year, the weakest quarterly showing in five years.

Analysts are worried that the sharp slowdown, which has been accompanied by rising layoffs, will jar consumer confidence so much that it will trigger sharp cutbacks in consumer spending. If severe enough, such a reduction could trigger the country's first recession in a decade.

The Fed has begun cutting interest rates in an effort to ward off a downturn and there are hopes that interest-sensitive sectors of the economy such as home sales will not suffer too much of a drop in activity.

Even before the Fed began cutting interest rates on Jan. 3, long-term mortgage rates, which are set by market forces, had been declining, reflecting the sharp slowdown in the economy that began last summer.

Currently, rates for 30-year fixed-rate mortgages average 7.15 percent, compared to five-year high of 8.64 percent reached last May.

For December, the government said the increase in sales activity pushed the annual sales rate to 975,000, the best since November 1998. The 13.4 percent rise in activity marked the biggest monthly gain since a 16 percent jump in April 1993.

The strength last month came from big gains in the West and Midwest, which offset weakness in other parts of the country.

Sales were up 38 percent jump in the West to an annual rate of 334,000. They posted a 22.1 percent increase in the Midwest to a rate of 166,000.

Sales, however, fell 8.1 percent in the Northeast to an annual rate of 57,000 homes and were down 0.7 percent in the South, where nearly half of new homes are built, to an annual rate of 418,000.

The rise in home sales was accompanied by a drop in prices. The median price of a new home, the halfway point between the most expensive and the cheapest house, dropped to $155,100 in December, down from $172,000 in November.

The average home price dipped to $205,100 last month, down from $210,000 in November.

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