Layoffs take toll on home sales

Associated Press

WASHINGTON — Wary about making big financial commitments, Americans pushed sales of new homes in September down to their lowest point in a year. Rising layoffs and new uncertainties raised by the terror attacks darkened the mood of prospective buyers.

New-home sales dropped 1.4 percent to a seasonally adjusted annual rate of 864,000, the lowest level since August 2000, when a rate of 839,000 homes were sold, the Commerce Department reported Friday.

"Many households were probably very reticent in September to make major investment commitments such as buying a new house," said Lynn Reaser, chief economist for Banc of America Capital Management.

"In many instances, households’ attention was focused on the whole chain of events that started on Sept. 11, and they were worried about what might happen next," Reaser added.

Last month’s drop came on top of a 2.9 percent decline in new-home sales in August, according to revised figures. The government had previously reported that sales rose 0.6 percent.

The housing market has been a pillar of the ailing economy. But fallout from the Sept. 11 attacks has taken a bite out of sales and is expected to dampen demand in the coming months, economists and builders said.

Still, even with slowing sales, analysts are hopeful the housing market, aided by low mortgage rates, will continue to be stable.

The average interest on a 30-year fixed rate mortgage in September was 6.82 percent, down from 6.95 percent in August. In September 2000, the rate stood at 7.91 percent.

By region, sales in the Northeast took the biggest hit in September, plunging by 26.6 percent to a rate of 47,000, the lowest level since January 1996 when sales also were at that level. Economists blamed the sharp drop on fallout from the terror attacks.

In the West, sales declined by 8.2 percent to a rate of 224,000, and in the South they fell by 1.4 percent to a rate of 416,000. But in the Midwest, sales jumped by 21.2 percent to a rate of 177,000.

"Builders will be showing a good bit of caution and will be employing incentives to attract buyers to make sure inventories of unsold homes don’t get high," said David Seiders, chief economist at the National Association of Home Builders.

The drop in sales pulled home prices down in September. The median sales price, at which half sell for more and half sell for less, was $162,400, a 5.1 percent decline from the month before.

The average sales price fell by 3.8 percent in September from the previous month to $195,700.

The shock of the terror attacks also has taken a toll on sales of existing homes.

On Thursday, the National Association of Realtors reported that sales of previously owned homes plummeted by 11.7 percent in September, the biggest one-month drop in six years.

Before the attacks, economists were hopeful that the economy, stuck in a more than yearlong slump, would begin to recover by the end of the year. Now, most economists believe a recession this year is unavoidable.

Many analysts believe that when the gross domestic product figure for the July-September quarter is released Wednesday, it will show economic output falling at a rate of around 1 percent, with the decline expected to accelerate to a 2 percent drop in the current quarter.

A recession is traditionally defined as two consecutive quarters of declining economic output.

To help the economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the Sept 11 attacks. Many economists are looking for another rate cut when the Fed meets next on Nov. 6.

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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