Originally created 05/28/03

Low mortgage rates motivate buyers



WASHINGTON -- Low mortgage rates beckoned buyers in April and pushed up sales of new homes to the highest level this year and sales of previously owned homes to the fifth best month on record.

The Commerce Department reported Tuesday that sales of new single-family homes rose by 1.7 percent from March to April to a seasonally adjusted annual rate of 1.03 million. That marked the best showing since December.

In a second report, sales of previously owned homes rose by 5.6 percent in April to a rate of 5.84 million, the fifth highest level on record, the National Association of Realtors reported.

Both reports provided fresh evidence that the housing market continues to be one of the economy's few bright spots.

April's performance for sales of both new homes and existing ones surprised economists. They were predicting new-home sales to go down and existing-home sales to rise to a rate of 5.70 million

The increase in April followed a sizable 8.2 percent rise in March, which had lifted sales to a rate of 1.01 million. At that time, it marked the best sales level this year. However, April's sales rate of 1.03 million new-homes sold surpassed that.

Low mortgage rates propelled home sales to record levels last year. And, this year is shaping up to be the second-best year ever for sales of existing homes and new ones, economists say.

The average rate on a 30-year fixed-rate mortgage in April was 5.81 percent, compared with 6.99 percent for the same month a year ago.

Rates on 30-year mortgages dropped to a new low of 5.34 percent last week, Freddie Mac, the mortgage giant reported. It marked the seventh time this year that rates on this benchmark mortgage fell to an all-time weekly low.

Low mortgage rates also propelled home-mortgage refinancing activity to a record level last year, something that has played a key role in supporting consumer spending. Consumers, the main force keeping the economy going, used the money saved on their monthly mortgage payments to make other purchases.

"Interest rates remain low and funds seem to be readily available to creditworthy borrowers," Federal Reserve Chairman Alan Greenspan told lawmakers on Capitol Hill last week. "These factors, along with the ability of households to tap equity accrued in residential properties, should continue to bolster consumer spending and the purchase of new homes."

Some private economists believe the Federal Reserve may opt to cut a key interest rate, now at a 41-year low of 1.25 percent, at its June 24-25 meeting, something that could move mortgage rates even lower. But other economists believe the Fed will hold rates steady, saying they are low enough to support economic activity.

By region, in the Midwest, new-home sales jumped by 13.4 percent in April from the month before to a rate of 186,000. In the West, sales rose by 4.3 percent to a rate of 267,000, and in the South they went up by 0.6 percent to a rate of 487,000. However, in the Northeast, sales fell by 17.8 percent to a rate of 88,000.

For previously owned homes - the biggest chunk of the housing market - sales rose 9.6 percent in the West to a rate of 1.60 million in April. In the Northeast, existing-home sales went up 4.8 percent to a rate of 660,000, and in the South, sales increased 4.1 percent to a pace of 2.31 million. In the Midwest, sales also rose 4.1 percent to a rate of 1.27 million.

For owners, rising home values also have played a role in making some home owners feel better about their balance sheets and feel more inclined to spend during the economic slump.

In April the average sales price of a new home rose to $235,000, up from the average price of $231,100 registered for March.

For a previously owned homes, the national median sales price - where half sell for more and half sell for less - was $163,400 in April, up 6.8 percent from the same month a year ago.