Proving analysts' predictions wrong, existing home sales actually rose 1.5% in March. The March numbers followed a rather strong February, in which sales rose 7%.
According to the National Association of Realtors, existing home sales rose to 4.83 million units in March from 4.76 million units in February. Analysts had predicted a decrease of 1.7%, partly due to higher mortgage rates.
But mortgage rates remained stable throughout the month, even showing a small decline, said Frank Nothaft, deputy chief economist for Freddie Mac. He said that small dip led the predictions to be off slightly.
"The housing sector remains the most interest-rate sensitive sector in the nation's economy," said Nothaft. "So even the small changes in the level of interest rates will have an effect on both construction and home sales." He noted that the rates declined roughly an eighth of a percentage point from February to March.
While home sales are continuing to be robust following a record year in 1999, Nothaft does not see another record, but sees 2000 as "the second strongest home sales market we've seen ever in the history of the universe, surpassed only by 1999." Overall, home sales have been declining year-over-year on average of about 6%.
While mortgage rates are higher than at this time in 1999, it has not scared away borrowers, NAR president Dennis Cronk said in a press release. "In today's market, buyers don't get as spooked by higher rates," he said. "The wide variety of home financing available gives them many options."
Nothaft added that rates are higher, but have remained relatively stable for much of 2000. "Thirty-year fixed-rate mortgage rates have remained in a fairly narrow band since the first of the year, varying between 8-1/8% and 8-3/8%," he said. "We're basically at 8-1/8 right now. I think we're going see fixed-rate mortgage rates remain within that narrow band."
As for adjustable-rate mortgages, the Federal Open Market Committee is expected to raise short-term interest rates by 25 basis points at its next meeting, and some upward pressure on the start rates on ARMs may be seen. "And the effect ultimately there will be to make adjustable-rate mortgages look less of a buy, or less attractive to consumers than a fixed-rate loan," he said. Nothaft added that the ARM share of the market is expected to decline from highs of 30% during the winter to around 20% going into the summer.
New home sales numbers are expected to be released early this week, and Nothaft also predicts they will show some growth. "I wouldn't expect a substantive change from February's level," he said.