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Home Resales Set 2nd Straight Record in Sept.

Indicators: Increase of 0.2% signals economy is expanding. Falling yields could bolster demand.

October 28, 1997|From Bloomberg News

WASHINGTON — Sales of existing U.S. houses set a second straight record last month, suggesting the economy continues its healthy expansion even as plunging stocks made it less likely that Federal Reserve Board policymakers will act to slow growth any time soon.

Home resales rose 0.2% last month to a record annual pace of 4.32 million, according to the National Assn. of Realtors. That topped the revised 4.31 million rate reported for August--also a record--and marks the fourth consecutive monthly increase. Demand for houses is a key indicator of economic activity because new homeowners tend to buy household goods, ranging from beds to the sheets that cover them.

"Housing activity is one of the healthiest sectors of the economy and will lead to more demand for durable goods like furniture and appliances," said David Jones, chief economist at Aubrey G. Lanston & Co. in New York.

Jones, who predicted that consumer spending on home and holiday-related goods will cause the economy to grow at an annual pace above 3% in the fourth quarter of this year and the first quarter of 1998, also said the Fed is unlikely to ward off inflation until financial markets stabilize.

U.S. stocks on Monday suffered their worst decline since the October 1987 market crash, sending the Dow Jones industrial average plunging 554 points, or 7.2%, to close at 7,161.15. The decline prompted the first halt in equities trading in more than 30 years.

Plummeting stocks prompted investors to seek the safety of U.S. Treasury securities. The yield on the benchmark 30-year T-bond fell to 6.12%--the lowest since February 1996--from 6.27% on Friday.

Falling bond yields could bolster demand for housing by depressing borrowing costs.

"As people bail out of stocks, they're buying across the curve," said Philip Rice, a partner at Atlas Pleiades Capital Management in San Anselmo, Calif.

The stock plunge alleviated investors' concerns about today's government report on third-quarter labor costs and Wednesday's congressional testimony by Fed Chairman Alan Greenspan.

The continued strength of the housing market is also a question mark, some analysts said.

Last month's resales gain was entirely accounted for by gains in the Northeast, Monday's report shows. Sales surged 11.7% in that region to an annual rate of 670,000. Meanwhile, sales were unchanged in the South at a 1.64-million annual pace; they fell 4.1% in the West to a rate of 940,000; and they dropped 2.8% in the Midwest to a pace of 1.06 million.

In August, sales rose a revised 3.1%, initially estimated a month ago as a 3.3% gain.

Analysts had expected sales of existing homes to fall 1.4% in September to an annual rate of 4.26 million. The figures represent actual closings, which lag contract signings by a few months.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Existing Home Sales

Seasonally adjusted annual rate, in millions of units:

Sept.: 4.32

Source: National Assn. of Realtors

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