The other shoe has finally dropped on the housing industry, as new home sales finally declined a bit after several consecutive months of increases that defied expert predictions.

New home sales slipped for the second consecutive month in January, but nevertheless remained exceptionally strong, implying that higher interest rates might be starting to take some sizzle out of housing markets.

Americans purchased new homes at a seasonally adjusted annual rate of 918,000, down 5 percent from 966,000 in December, the U.S. Census Bureau reported.

The sales rate, despite the 5% decline, nevertheless was the third highest on record. Sales topped 1 million in November, the most since the government began tracking them in 1963.

Mortgage rates have begun to edge up recently, sapping one of the most potent influences that sent construction and sales soaring in 1998.

Three interest-rate cuts by the Federal Reserve late last year fostered sales by bolstering stock prices and driving consumer optimism up.

But in recent weeks, long-term interest rates have been edging upward amid unease about future Fed rate moves, with 30-year mortgage rates topping 7 percent for the first time in months.

Bond prices moved up moderately after the release of the housing data. A cooldown in housing markets from last year's sky-scraping highs might encourage the U.S. central bank to hold off on interest-rate rises if it appeared the economy was slowing on its own.

``The inventory number shows that there is really no shortage of homes. I would think builders would want to err on the cautious side and slow down building,'' said Robert Barr, senior economist at Fannie Mae.

Despite the back-to-back monthly declines in December and January, sales in January remained 8.3 percent above the pace a year earlier -- January 1998 -- when new homes were moving at a rate of 848,000 a year. The Commerce Department said that January was the 38th month in which new homes were selling at a rate of 700,000 or more, setting a record.

With mortgage rates remaining under 7 percent and jobs plentiful, at least so far this year, most economists expect strong new home sales in 1999, just not quite as strong as the record 887,000 for all of 1998.

Regionally, the Midwest posted the worst drop -- 25 percent, the most since September 1996, to a seasonally adjusted annual rate of 133,000. It was followed by the Northeast, down 7.2 percent to a rate of 77,000, and the South, down 3.7 percent to a rate of 437,000. Sales rose 8 percent in the West to a rate of 271,000.

The decline in sales means new homes are somewhat more available nationally, in proportion to the number of buyers. The inventory of unsold homes at the end of the month was 302,000, the most in two years. That's a four-months supply at the current sales rate, up from 3.8 months in December.

The median price of a new home -- meaning half sold for more and half for less -- was 157,000 in January, up 6.1 percent from a year earlier.

Last week, the National Association of Realtors reported that Americans purchased existing homes at a record seasonally adjusted rate of 5.07 million in January.

Published: March 3, 1999

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