New home sales up 14%

WASHINGTON Lower mortgage rates coupled with lower home priceshelped push sales of new homes in July to their highest level in morethan 2 1/2 years, the government said Tuesday.

New single-family home sales rose 14.4 percent in July to aseasonally adjusted annual rate of 739,000 units, the highest annualrate since December, 1986, the Commerce Department said.

The report on home sales and an upward revision of economicactivity in the second quarter suggest the economy remains relativelyhealthy and that the Federal Reserve is likely to hold interest ratessteady, economists said.

The July rise in new-home sales was the biggest monthly increaseover the prior month since a 22.9 percent jump in sales in September,1986, the department said. In December of that year, sales of newhomes hit a seasonally adjusted annual rate of 784,000 units.

"I think it is perfectly clear that lower interest rates haveenergized the home buyer," said Lyle Gramley, senior economist withthe Mortgage Bankers Association.

In the Northeast, new home sales soared 55.8 percent in Julyafter a 12.5 percent drop from May to June. The July increase wasthe highest for the region in 6 1/2 years, the Commerce Departmentsaid.

Price concessions by builders to move bloated inventories helpedsales in the Northeast, economists said. "That together with lowerinterest rates has made all the difference in the world," Gramleysaid.

John Tucillo, chief economist for the National Association ofRealtors, said the report also reflected a move by homebuyers towardmore modest homes.

The average home sales price in July fell to $143,300 from$155,500 in June and $144,000 in May, the government said.

Robert Villanueva, director of forecasting for the NationalAssociation of Home Builders, said the July price level was more inline with recent months and June was an aberration.

The home sales data and the revision in second-quarter GrossNational Product, also released by the government Tuesday, suggestthe economy is expanding at a healthy pace and that the FederalReserve is likely to delay any moves to further lower interest rates.

"New home sales is an indication of strength in the economy inthe second half of the year," said David Berson, chief economist withthe Federal National Mortgage Association.

Home sales were strong in July throughout the country. Salesjumped 23.8 percent in the Midwest, 2.4 percent in the South and 8.9percent in the West, the department said.

Mortgage interest rates have been declining since March, fallingto 9.5 percent in July in some parts of the country. But in the lastthree weeks, mortgage rates have inched upward, which could dampensales.

Interest rates for fixed-rate 30-year loans averaged 10.21percent last week, according to the latest survey by the Federal HomeLoan Mortgage Corp. Gramley said he thinks mortgage rates willresume their decline later this year and could reach 9.25 to 9.5percent, including points charged by lenders, by the beginning ofnext year.