Home Sales Stall as Mortgage Rates Climb

Feb. 27, 2005 — -- An uptick in mortgage rates during the last year slowed the sale of new homes and offered more proof that the booming housing market is in the midst of a rapid slowdown, according to a report released today.

The Commerce Department released a report this morning showing a marked one-month slowdown in sales of new homes in the United States.

The report shows that buyers snapped up new houses at a seasonally adjusted annual rate of 1.233 million units; that's a decline of 5 percent from December's rate and is well below analyst estimates of 1.260 million for January.

The median home price for new construction is now $238,100.

Some interesting regional data is also included in the report. Sales in the Northeast saw a steep 14.9 percent falloff, while the Western United States saw sales jump by 11.3 percent.

Analysts will say these numbers reinforce the idea of a slowdown in the nation's housing market; Tuesday's existing-home sales report will likely show pretty much the same thing.

Why do housing experts think we're going to see a broad slowing of the market? Two factors are in play: rising inventories and mortgage rates.

Today's new-homes report from the government shows that the national supply of new homes for sale is at 5.2 months, well above last year's average of 4.5 months. As supplies increase, prices tend to stabilize and sellers have to expect a longer time-to-sale. It's really the tipping point for creating a buyers market.

What's tamping down buyer interest: mortgage rates. Freddie Mac says the average 30-year fixed-rate mortgage now stands at 6.26 percent, up from 5.69 percent a year ago. That makes it a moderately more expensive endeavor to buy a new home this year (about $60 more per monthly payment for a modest home).