New-Home Sales Dip, But Still High

New-home sales dipped in July as rising mortgage rates seemed to turn off some house hunters. But even with the decline, sales posted their second best month on record.

And sales of previously owned homes, reported Monday, hit a new record in July as fears of rising mortgage rates seemed to push buyers off the fence and into the market.

The Commerce Department reported Tuesday that sales of new, single-family homes edged down to a seasonally adjusted annual rate of 1.17 million units, representing a 2.9 percent decline from June's record high sales pace of 1.20 million.

Mortgage rates — which have been recently rising — have been at more some of the lowest levels seen in more than four decades during much of this year. And, that has powered the housing market, which is on track to set a record high year in sales this year, economists say.

Other recent reports on the housing market suggest that this pillar of support for the economy isn't crumbling, even as mortgage rates have recently climbed.

Sales of previously owned homes — which account for the biggest slice of the housing market — soared to an annual rate of 6.12 million units in July, marking the best month on record, the National Association of Realtors said Monday.

And, last week the government reported that housing construction in July rose to an annual rate of 1.87 million units, a 17-year high.

"Mortgage rates have gone up one full percentage point since [July], so I expect home sales now to slow down," Lereah told CBS Radio News Monday. "This looks like we're at the last hurrah for housing. This is probably the peak."

The average monthly rate for a 30-year fixed-rate mortgage was 5.63 percent in July, up from a record monthly low of 5.23 percent in June, according to Freddie Mac, the mortgage giant.

Several factors have contributed to the recent rise in mortgage rates, economists say. They include: signs that the economy is gaining traction; concern about swelling federal budget deficits; and disappointment on Wall Street that the Federal Reserve didn't make a bolder cut to short-term rates on June 25. Those factors have pushed bond rates up, causing long-term mortgage rates to rise.

Last week, the average weekly rate on 30-year mortgages rose to 6.28 percent, marking the seventh increase in the past eight weeks.

In Tuesday's new-home sales report, sales in the Midwest jumped by 17.3 percent in July from June to a seasonally adjusted annual rate of 230,000, the best showing since December. In the South, sales climbed to a record high rate of 572,000, a 1.1 percent increase from June's level. But in the Northeast, sales tumbled by 20.8 percent to a rate of 61,000, and in the West, they dropped by 16.3 percent to a pace of 302,000.

The median sales price of a new home in July was $191,500, up from $184,700 in June. The median price is where half sell for more and half sell for less. The average sales price of a new home in July was $256,000, compared with $236,300 the month before.

Rising home values has helped to support consumer spending, a main force keeping the economy going.

Refinancing also has been an important factor underpinning consumer spending. Refinancing activity, however, has cooled as mortgage rates have gone up. Still, economists are hopeful that fatter paychecks and other incentives coming from President Bush's third tax cut will move in to support spending as refinancing slows.