Existing Home Sales Bounce Back in February

The increase in sales and prices came despite rising interest rates.
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Sales of existing homes rose solidly in February as home buyers were buoyed by a strong job market, high consumer confidence and rising salaries.

Existing home sales rebounded in February from their abnormally slow pace in January, rising for the first time since November, by 6.7% from February 1999 to an annualized rate of 4.75 million units, the

National Association of Realtors

reported Monday.

In January, sales of existing homes fell a revised 13.4% due to cold weather in much of the country and a lull in activity after concerns about a year 2000 computer glitch subsided.

Meanwhile, the average for an existing home rose to $131,000 in February, compared with $128,100 in February 1999.

The increase in sales and prices came despite rising interest rates, which typically slow home sales by making it more expensive for home buyers to borrow. Between June 1999 and February, the

Federal Reserve

had raised the interest rate four times for a total of 1 percentage point in an attempt to slow down economic activity. The Fed has since raised the interest rate again by an additional quarter percentage point.

According to

Freddie Mac

, one of the largest U.S. home lenders, the average rate for a 30-year mortgage was 8.33% in February, up from 8.21% in January and 6.81% in February 1999.

"The fact that sales improved in the face of continuing increases in mortgage interest rates demonstrates the very high demand for housing in the United States," said Dennis R. Cronk, the president of the National Association of Realtors, in a statement.

By all measures, the housing market is a strong beneficiary of the booming U.S. economy. With record low unemployment, rising stock markets, and record levels of consumer confidence, U.S. consumers have been lured toward the American dream of home ownership.

Despite February's strong year-over-year growth in home sales, NAR said the market may be starting to stabilize as the Fed's rate increases make home financing less attractive.

"We expect the market to be relatively stable over the next few months with more buyers switching to adjustable-rate mortgages in order to qualify for loans," Cronk said.

As a result of higher rates, NAR expects a general slowdown through the end of the year. The group forecasts total sales in 2000 to come in around 4.74 million units, which would be the third-highest year on record, but down sharply from 1999's 5.20 million.