May 26, 1995 in Nation/World

Sales Of Existing Homes Plunge To Three-Year Low April Drop Raises New Concerns About Economic Slowdown

Bloomberg Business News
 

Sales of previously-owned homes fell during April to the lowest level in almost three years, suggesting that lower mortgage rates may not be enough to keep the U.S. economy from continuing to decelerate.

The 6.4 percent decline in home resales last month to 3.390 million at an annual rate was the third decrease in four months, a realty trade group said. In March, sales rose an unrevised 5.8 percent.

“Housing sales are a leading indicator of the economy,” said Peter Kretzmer, an economist at NationsBank Corp. in New York. “The overall decline in the economy may be sharper than most people perceive.”

A separate report from the Labor Department underscored that point. First-time jobless claims rose 13,000 last week to 380,000, putting it at the highest level since last July, the agency reported. Additionally, the less volatile four-week average for claims rose to a 2 1/2-year high.

These signs of weakness led some analysts to speculate that the Federal Reserve will be forced to lower interest rates by July to prop up the economy. While that may be good news for domestic borrowers, it’s not what currency traders want to hear.

That helps explain why the dollar plunged more than 4 pfennig against the deutsche mark and was down 2.36 yen against the Japanese currency Thursday. Lower U.S. interest rates often hurt the dollar by making bank deposits denominated in the currency less attractive.

Lumber prices plunged by the $10 daily limit in Chicago Mercantile Exchange trading to $251.10 per 1,000 board feet as traders braced for more weakness in home building. Stocks also fell, with the Dow Jones Industrial Average falling 25.93 points to close at 4412.23 amid concerns about lower corporate profits.

The April home sales report showed that even though 30-year mortgage rates were heading down toward 8 percent, many consumers were still leery about committing to home purchases. The weakness was nationwide.

The overall level of sales was the lowest since June 1992, when it also ran a 3.39 million, said Trisha Morris, a spokeswoman for the National Association of Realtors, which published the report. Before that, the low was 3.27 million in January 1992, she said.

The economy’s cooling is a consequence of Fed moves to raise the overnight bank lending rate seven times in a 12-month period starting Feb. 4, 1994, analysts said.

Since the beginning of February this year, though, Fed policy-makers have twice opted to leave short-term interest rates steady.

Mortgage rates, meanwhile, have been moving steadily lower since Christmas, when they set a recent peak of 9.25 percent.

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