Buyers grab rates before it's too late

Possible interest hikes send buyers scrambling

Don Hogsett, June 28, 2004

With home buyers trying to sneak in under the wire before higher interest rates take effect, the broad American housing market largely continued its forward momentum during May, with sales of new homes soaring sharply higher and reaching a record level, and sales of existing homes rising for a fourth straight month.

Builders may be hedging their bets somewhat, antsy about the possible impact of impending interest-rate hikes, and the forward-looking indicator of housing starts subsided for a second straight month, declining 0.7 percent, following a decline of 1.7 percent in April.

The big news in May was a surprisingly strong surge of 14.8 percent in the market for expensive new homes, reversing a 7.9 percent decline the prior month, the Commerce Department reported. Sales of new homes soared to a record high, to a seasonally adjusted level of 1.3 million units, up from 1.2 million units in April.

"The extraordinary sales pace for May probably involved some acceleration of transactions in anticipation of higher interest rates down the line," said David Seiders, chief economist for the National Association of Home Builders (NAHB). "But it's clear that underlying housing demand is quite strong and the current supply-demand balance is excellent. We are now forecasting that new home sales will hit another record in 2004."

Muddying the picture, new home sales were mixed across the country. The Northeast recorded a huge 53.2 percent increase in new home sales, and the South was up 20.3 percent. Elsewhere results were more muted, with the Midwest flat and western states up 6.5 percent.

Sales of more moderately priced existing homes, the largest slice of the housing pie, advanced 2.6 percent, to a seasonally adjusted level of 6.8 million units, the National Association of Realtors (NAR) reported.

"Once again, consumers were trying to cut their deals to lock in historically low interest rates," said David Lereah, NAR chief economist. "In part, the record results from a natural 'fence-jumping' by buyers coming into the market after mortgage interest rates began to rise at a sharper clip in April."

Housing by region
Month-to-month % change

Existing home sales Housing starts New home sales
Northeast -1.4% -3.3% 53.2%
Midwest -0.7 -8.2 0.0
South 3.8 -10.8 20.3
West 5.5 28.9 6.5

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