Housing slides back in August

NEW YORK — Taking an end-of-summer breather during August, after trying to launch a comeback the month before, the broad U.S. housing market slipped back into negative territory despite the impetus of historically low interest rates.

Existing home sales, by far the largest segment of the housing market, slipped by 1.7 percent, and housing starts fell even further, dropping by 2.2 percent. Only the highly volatile market for new homes, subject to wide monthly swings and subject to frequent revision, managed a gain, edging up by 1.9 percent. And even then, the U.S. Commerce Department restated July sales sharply downwards, to a revised gain of 1.9 percent from a previously reported 6.7 percent increase.

Measured on a seasonally adjusted basis, a widening gulf is emerging between slowing sales of more moderately priced existing homes and steadily climbing sales of more costly new homes, and their counterpart housing starts. Measured on a year-over-year, seasonally adjusted basis, existing home sales are down by 3.8 percent, while sales of new homes, which appeal to a well-heeled buyer, shot up by 14.4 percent. Housing starts are up a slender 3.0 percent, suggesting that home builders are starting to hedge their bets in a tricky economic environment.

Going forward, David Lereah, chief economist of the National Association of Realtors (NAR), said he's not expecting any big bump-up in existing home sales. "For the rest of 2002, we're not expecting any big movements in the month-to-month sales pace, but we still expect above-normal rises in home prices due to a persistence of lean housing inventories on the market."

The national median price of an existing home was $163,000 in August, up 6.4 percent from August 2001, when the median price was $153,700, about $10,000 less.

"The rate of home-price increases has been trending slowly downward, and we expect to return to a generally balanced market with normal price appreciation in 2003," Lereah added.

Offsetting rising home prices, and providing a lift to the market, are steadily low mortgage rates, said Martin Edwards Jr., president of the NAR. "Mortgage interest rates have edged lower in the last couple of weeks, and we have to back to the mid-1960s to see interest rates as low as they are today," said Edwards. "The drop in mortgage interest rates is offsetting higher home prices, so housing affordability conditions are remaining fairly even."