Originally created 02/26/03

Low interest rates push existing-home sales higher



WASHINGTON -- Sales of previously owned homes surged to a record monthly high in January as super-low mortgage rates induced people to make that big-ticket commitment despite worries about a possible war with Iraq.

The National Association of Realtors reported Tuesday that existing-home sales clocked in at a seasonally adjusted annual rate of 6.09 million - the best month ever. That represented a strong 3 percent increase from December's level.

"It's mortgage rates," said the association's chief economist David Lereah. Low mortgage rates "continue to be the fuel for the housing engine," he said.

January's performance defied some analysts' expectations that sales would dip slightly to a rate of 5.80 million units.

The housing market is thriving even as the American economy, knocked back by the 2001 recession, is still struggling to regain a sold footing. The lure of low mortgage rates proved irresistible to many people, who opted to make big-ticket financial commitments despite the muddled economic environment.

In January, the average rate on a fixed-rate 30-year mortgage dropped to 5.92 percent, a record monthly low, and down from the average rate of 6.05 percent in December.

Last week, rates on 30-year mortgages dropped to a new low of 5.84 percent. That was the lowest since mortgage giant Freddie Mac began tracking 30-year mortgage rates in 1971. Records that reach back earlier than Freddie Mac's indicate that the rate is the lowest since the early 1960s.

Low mortgage rates powered sales of both new and existing homes to record levels last year. And, last week, the government reported that construction of new homes and apartments posted a 16-year high in January, which analysts saw as a sign the housing industry was off to another good year.

By region, in the South, sales of existing homes rose by 7.3 percent in January from the previous month to a seasonally adjusted annual rate of 2.5 million, a record monthly high.

In the West, sales went up 5.1 percent to a record rate of 1.66 million, and in the Northeast, sales increased 4.5 percent to a pace of 690,000.

But in the Midwest, sales fell by 7.5 percent to a rate of 1.24 million, after setting a record high sales pace in December.

The winter snow storms that ravaged the East Coast and other parts of the country in February are sure to take a bite out of existing-home sales figures in the coming months, Lereah said.

Still, he and other economists marveled at the good start the housing industry experienced in January.

Low mortgage rates are encouraging many people to buy homes or refinance those they already owned. The extra monthly cash that homeowners save by refinancing mortgages at lower rates has helped consumer spending remain the primary force keeping the economy going.

Another factor motivating home buyers is solid appreciation of housing values. That offers people attractive investment, especially given the turbulent stock market, economists say.

The national median home price in January was $160,400, up 6.7 percent from the same month a year ago. The median price is where half sell for more and half sell for less.