Housing strong on low interest rates

Don Hogsett, May 3, 2004

Building on February's gains and recovering from a deep slide in January, the broad American housing market made another strong advance during March, with all three sectors helped by improving weather and low interest rates.

Putting up the strongest number was the volatile market for costly new homes, subject to wide monthly swings, where sales jumped 8.9 percent, to a seasonally adjusted level of 1.2 million units.

Housing starts, a guide to home builder confidence and future sale activity, improved 6.4 percent, to a seasonal 2 million units. Sales of older, and generally less costly, existing homes, climbed 5.7 percent, to a seasonal level of 6.5 million units.

The gains were spotty when measured on a regional basis, with the Northeastern states notably weak performers. There, sales of new homes tumbled 24.3 percent, while housing starts fell 4.9 percent, and sales of existing homes were unchanged.

David Lereah, chief economist for the National Association of Realtors, said low interest rates get most of the credit for last month's robust performance, but added that interest rates are now rising, which could have an impact on sales down the road.

"Although interest rates are rising modestly, an improving job market is creating a favorable backdrop for home sales, but at a somewhat slower pace in the months ahead," he said.

David Seiders, chief economist for the National Association of Home Builders, said rising interest will be offset by other factors.

"Though interest rates are beginning to rise as the economy improves, we still expect the housing market to remain strong because the fundamentals — household incomes, employment and household formations — are strong," he added.

The national average commitment rate for a 30-year, conventional fixed-rate mortgage was 5.45 percent in March, the second-lowest on record and down from 5.64 percent in February. Rates are now even lower than a year ago, when they were 5.75 percent in March 2003. The record low is 5.23 percent set in June 2003.

Housing by region
Month-to-month % change

Existing home sales Housing starts New home sales
Northeast 0.0% -4.9% -24.3%
Midwest 6.3 10.6 5.0
South 3.6 8.5 19.3
West 10.2 3.7 5.1
Source: U.S. Department of Commerce and National Association of Realtors.

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