Sales of new homes unexpectedly shot up 7.9 percent in July to the highest level in five months despite mortgage rates that remained over 8 percent. All regions except the Northeast posted gains.
It was the latest suggestion the economy may not be slowing sufficiently to avoid a Federal Reserve interest rate hike to prevent inflation. Many analysts had expected a slight decline.The Commerce Department said sales of single-family homes totaled 783,000 at a seasonally adjusted annual rate, up from a revised 726,000 a month earlier when sales initially were estimated at a 734,000 rate.
The rate was the highest since a 784,000 pace in February, and the sales surge was the steepest since an 8.8 percent jump in January.
Still, sales in April and May were revised downward. The initial reports are based on relatively small samplings and are subject to changes as more information becomes available.
Sales during the first seven months of 1996 were 14.4 percent above those during the same period a year ago.
The National Association of Realtors reported earlier this week that sales of existing homes fell 0.5 percent in July, and analysts predicted new home sales would follow suit because of mortgage rates that averaged 8.25 percent, compared to 7.03 percent last January.
The monthly payment on a $100,000 mortgage with a 7 percent interest rate is $665, while the payment on the same loan with an 8.5 percent rate is $769 - a difference of $104.
The cost of 30-year, fixed-rate mortgages averaged 7.93 percent last week.
Many analysts contend that housing activity remains strong because the curbing effects of higher rates often are being offset by improving job and income growth.
Sales have remained above 700,000 for seven straight months, the first such string of advances since November 1985 to June 1986.
The report also showed the median price of a new home had risen to $143,000, highest since the government began keeping track in 1963. The median price was $140,000 in June and $131,000 a year earlier.
The median is the midpoint, meaning half of the homes cost more and half less.
At the end of July, the seasonally adjusted estimate of new homes for sale was 365,000, representing a supply of 5.8 months at the current sales rate.