WASHINGTON -- Two reports released yesterday that showed rising single-family home sales and rebounding consumer confidence suggest that the economy remains healthy.
The Commerce Department reported that single-family home sales grew 4.2% in May to a seasonally adjusted annual rate of 738,000 units. Analysts on average had expected a small decline. What's more, May's gain followed revised sales in April of 708,000, up from the 683,000 pace last reported.
Separately, the Conference Board reported that its consumer confidence index climbed 3.1 percentage points in June to 92.0, the highest level in nearly four years. Again, this exceeded expectations and followed an upwardly revised estimate for May to 88.9 from 87.6. The index is based on a 1985 U.S. average of 100.
"These numbers indicate that despite rising interest rates, consumers feel fairly good about the economy," said Christine Chmura, chief economist of Crestar Bank, based in Richmond, Va.
Yesterday's reports show "the consumer sector will remain healthy, but probably not quite at the levels seen at the end of last year," said Mark Zandi, chief economist of Regional Financial Associates in West Chester, Pa.
Fixed-rate 30-year mortgages averaged 8.6% in May, up from 8.32% in April, which was up from 7.68% in March, according to Mark Obrinsky, senior economist of the Federal National Mortgage Association in Washington, D.C.
Despite rising rates and abnormally bad weather in January and February, home sales have been strong so far this year. New home sales are up 13.3% compared with the first five months of last year.
And on Monday, the National Association of Realtors reported that existing home sales in May remained strong, falling only 0.7% from the previous month to a seasonally adjusted annual rate of 4.09 million, which was 13.3% higher than the previous May.
The stimulative effects of strong job and income growth on the housing market so far this year seem to be more than offsetting the restraining effects of higher mortgage rates, analysts said.
"Household incomes are still growing faster than home prices," said Zandi, noting that mortgage rates are still low by historical standards.
Nonetheless, economists agreed that higher mortgage rates and slower overall growth in the second half of the year, which they expect, will cause home sales to decline very gradually in the coming months.
"Higher rates will slow things a bit, but they won't cripple the industry," said Kim Rupert, senior economist of MMS International. For the year as a whole, she predicted new home sales will post a 8% to 10% gain compared to last year.
Obrinsky predicted that home sales will sustain about a 700,000 rate this year, which would put sales slightly more than 5% above the level in 1993.
In general, analysts were also encouraged that the confidence index increased in June, but they cautioned that the index is not a reliable leading indicator of consumer spending. In fact, the Conference Board noted that while general confidence was up, plans by consumers to make major new purchases retreated.
"Plans to buy an automobile are down for the second consecutive month," the private research group said. "Intentions to purchase a home have been declining in recent months. Interest in major appliances is also weaker."
Derived from a survey of 5,000 households, the confidence index is based on two components: how people feel about current conditions, and their expectations for the future. The current sentiment index gained surged to 88.4 from 81.9, while the expectations index inched up less than a point to 94.4 from 93.6.
"Confidence is currently at a level which, historically, has been associated with a reassuringly lively economy," said Fabian Linden, an executive director of the New York-based Conference Board.
