New home sales fall to lowest level in more than two years

WASHINGTON - Sales of new homes fell for a third straight month in June, registering the slowest sales pace since 1997 as higher mortgage rates cut more deeply into the housing boom.

The Commerce Department reported Wednesday that new home sales dropped by 3.7 percent in June. Sales declined in all regions of the country except the West.

The drop, which followed decreases of 0.9 percent in May and 8.2 percent in April, pushed the annual sales rate sales down to 829,000 homes, the slowest pace since December 1997.

Economists blamed the decline on higher mortgage rates, which hit a five-year peak of 8.64 percent in mid-May. While rates have come down a bit since then, analysts said they remain at levels that will lessen demand for new homes.

''We are not talking about falling off a cliff, but we do believe housing will be slowing for the rest of the year,'' said Stanley Duobinis, economic forecasting director at the National Association of Home Builders in Washington.

He predicted new home sales would total 867,000 this year and 808,000 in 2001, down from the record of 909,000 sales set in 1999 but still higher than the 807,000 new homes sold in 1997.

Part of the reason builders are optimistic home sales will remain strong is that mortgage rates have come down from their May highs. Last week, Freddie Mac, the mortgage company, reported the nationwide average for 30-year mortgages had dipped to 8.13 percent.

Karen Dexter, an economist for Merrill Lynch in New York, said she expected mortgage rates to stay close to current levels because of a belief that the Federal Reserve will not boost interest rates further.

Other economists said they were still looking for one or perhaps two more Fed rate increases as the central bank works to slow economic growth further to make sure inflation does not get out of control. The Fed's next meeting is Aug. 22.

The decline in home sales in June pushed prices down as well.

The median sales price, the midpoint where half the homes sold for more and half for less, dropped 1.4 percent to $159,000 in June, down from $161,200 in May. That was the lowest median sales price since August 1999, when it was $154,900.

The average price of a new home sold in June was $196,300, down 1 percent from a May average of $198,300.

The West had a 0.5 percent sales increase, to an annual rate of 220,000 homes.

Sales fell the most in the Midwest, down 7 percent to a rate of 133,000 units, the slowest sales pace since September 1997. Sales were off 5.1 percent in the South to an annual rate of 408,000 units and dropped 1.5 percent in the Northeast to an annual rate of 67,000 units.


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