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May 31, 2000

U.S. New Home Sales Fell 5.8% to 909,000 Annual Rate in April
By Vince Golle, Bloomberg

Signs of a slowdown...Weiss comments

WASHINGTON - U.S. new home sales fell in April to the lowest level in five months as demand plunged in the Midwest and West, government figures showed.

Sales declined 5.8 percent last month to a seasonally adjusted annual rate of 909,000 units, after a revised March increase of 5.8 percent to 965,000 homes, the Commerce Department said. March's sales rate was the second-highest on record.

``Higher mortgage rates and the stock market's weakness are beginning to chip away at the strength in housing,'' said Lynn Reaser, chief economist at Banc of America Capital Management Inc. in St. Louis, before the report.

Mortgage rates have been rising since the Federal Reserve embarked on a series of interest-rate increases in June. The average rate on an adjustable-rate mortgage rose this month to the highest level in more than nine years.

The April sales pace was the slowest since 895,000 units at an annual rate in November. The decline was the largest since a 7.2 percent decrease in September.

Still, optimistic consumers, a jobless rate at a 30-year low and rising incomes have kept the rate of home sales this year above 1999's record pace. New home sales are on a pace to reach 938,000 this year, compared with 907,000 units last year.

Consumer confidence rose in May to its second-highest level on record, suggesting higher interest rates won't curtail overall spending any time soon, Conference Board figures showed yesterday.

Analysts had expected sales to decline 2.7 percent to an annual rate of 940,000 in April after March's previously reported increase of 4.5 percent to a 966,000-unit pace. March's sales rate was the strongest since a 995,000-unit annualized pace in November 1998.

This is yet another sign that the Fed's more aggressive half-point interest rate hike has begun to slow things down. The drop in new home sales clearly shows that higher interest rates are putting a damper on purchasing big ticket items, like homes and cars. But home sales are still on breakneck pace for the year and consumer confidence is still soaring.

Bounces in the market because of this news are foolishly optimistic. This is not a sign that the Fed will ease off on interest rates. Just a reassurance that it is on the right track and that more rate hikes are on the way.

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