U.S. home resales unexpectedly rose in May to tie a record high set almost three years ago even as rising mortgage rates pushed up borrowing costs.
Resales advanced 1.4 percent last month to an annual rate of 4.260 million, according to the National Association of Realtors.
The figure, which represent actual closings, only once before reached that level, in December 1993. Wall Street analysts expected a 1.9 percent decline for the month and said they were surprised at the ability of the housing industry to continue to roll along without pause.
“There’s no sign of weakness in these housing numbers,” said Peter Kretzmer, an economist at NationsBank Corp. in New York. “If you’re going to see a drop in second-half consumer spending, you’re going to see it in the housing numbers first because they are a leading indicator.”
Still, the continued strength in home sales suggests “there’s a 50/50 chance” Federal Reserve policymakers will raise interest rates when they meet next week, said Rob Schumacher, who helps manage $20 billion in bonds at Kemper Financial Services in Chicago.
A increase in the overnight bank lending rate by the Fed would be designed to slow activity as a way of keeping inflation in check. So far, though, higher interest rates haven’t made “much of a dent” in the economy, said Elliott Platt, director of economic research at Donaldson, Lufkin & Jenrette, a major brokerage firm in New York City.
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Conference Board vice president Edgar Fiedler said a slight decline in consumer confidence in June “is not alarming” because overall the index “continues to suggest economic growth for the months ahead, though not robust growth.”
However, if the trend continues it could cause problems for President Bill Clinton’s re-election in November, said Richard Yamarone, an economist at Market Data Corp., of Rye Brook, New York.
“This doesn’t bode well for the president because the only thing he has in his pocket is the economy,” Yamarone said.
The home report from the realty group showed that sales rose 6.7 percent in the Midwest to an annual rate of 1.120 million. They also rose 2.6 percent in the South to 1.570 million. Sales fell 4.1 percent in the West to 930,000, and they dropped 1.5 percent in the Northeast to 640,000.
During April, resales were revised to being unchanged from March after originally being estimated as a 0.5 percent month-to-month gain.
The NAR report is a key gauge of the health of the housing industry because previously owned homes make up about 85 percent of all U.S. single-family home sales.
The average price of a previously owned home increased 1.8 percent to $144,400 in May from $141,900 in April, the NAR said.