New-Home Sales Tumble; Mortgage Rates Blamed

Rising mortgage rates sent a chill through the nation’s home-building industry last month as new-home sales fell by 12.8%.

Nationwide, sales of new single-family homes dropped to a seasonally adjusted annual rate of 811,000 units. The September decline was the largest drop since January 1994, when sales fell by 24%, the Commerce Department reported Friday.

Surprised by the weak showing, economists were quick to blame mortgage interest rates, which rose to 7.82% last month for a 30-year, fixed-rate mortgage, compared with 6.72% in September 1998.

The Mortgage Bankers Assn. of America reported that home-loan applications for the week ending Oct. 22 were down 59.2% from a year ago.

Sales of new homes were weakest in the West, falling 14.8% to an annual rate of 213,000 units in September.

Southern California’s new-home sales, meanwhile, posted a 9% year-over-year gain last month, rising to 3,044 in the region’s six-county area, according to Acxiom/DataQuick, a real estate information company.

So far this year, 24,297 new homes have been sold in Southern California, up 4.1% from a year ago.

“We’re seeing a positive trend,” said John Karevoll, an analyst with Acxiom/DataQuick.

New-home sales in Orange County, the Southland’s priciest market, plunged 39% from the second quarter to the third, and dropped 15% from a year ago, according to the Meyers Group, an Irvine-based company that tracks new-home projects nationwide. However, prices rose 4.5% from a year ago, to a median of $371,990. But that was off of the all-time high of $379,990 set in the April-June period.

A record 40 new projects were launched in the July-September period, mostly in master-planned communities in south Orange County. As a result, the supply of new homes swelled to 12 weeks, a historically low figure, but more than double the five-week supply of a year ago.

Demand for new homes is expected to boost prices steadily because of the strong economy, but not at the double-digit rates seen in recent quarters, according to the Meyers report. With more homes to choose from, buyers may sense less urgency to purchase as quickly as they did a year ago.

Contributing to higher home prices across the Southland are rising land costs, increased labor and material costs and a tendency among builders to put up a higher percentage of larger luxury homes.

John Burns, senior managing director of the Meyers Group, said home builders endured a similar slowing last September and October brought on by a bumpy stock market and a drop in consumer confidence.

“We went through this last year and we came out very strong,” Burns said.

Nationwide, the median price for a new home rose to $160,000, tying a record set in April, the Commerce Department reported.

New-homes sales make up a relatively small percentage of the total number of homes purchased each year across the country. Nonetheless, economists keep a close eye on the new-home market due to the ripple effect it has on the broader economy--from providing construction jobs to fueling the purchase of new appliances.

The Federal Reserve has bumped up short-term interest rates twice this year to slow the economy and keep inflation in check. Many economists are speculating that federal policymakers will raise interest rates a third time this year. They are scheduled to meet Nov. 16.