WASHINGTON -- The U.S. housing market turned sour in September as sales of new single-family homes tumbled despite the last few months' steady decline in mortgage interest rates, adding to evidence that the economy is losing momentum.
Sales of new homes fell 12.9% from 512,000 to 446,000, the Commerce Department reproted yesterday. That is the lowest level since January, when the economy was in the middle of the recession.
"Housing is fading despite a pretty significant drop in interest rates over the summer," said James Winder, money market economist for Merrill Lynch. "Consumers are very cautious, and they're not optimistic about the future."
Sales slumped in all regions, taking activity back to levels that have not been seen since the first three months of the year. Sales in the West dropped 16.7%, from 144,000 to 120,000, and in the Northeast they fell 12.9%, from 62,000 to 54,000. In the South, sales fell 11.8%, from 212,000 to 187,000, and in the Midwest they dropped 10.6% from 94,000 to 84,000.
In addition, the department said revised figures showed a sales increase of just 1.8% in August, much less than the originally reported rise of 6.7%.
Industry analysts said the figures reinforced the notion that the housing sector is losing the little pep that it showed earlier in the summer, despite the Federal Reserve's moves to lower interest rates. Sales of existing homes fell to 3.11 million in September from 3.25 million in August, according to the most recent figures from the National Association of Realtors.
"This is another indication that low mortgage rates at this point are not enough to stimulate a pickup in home sales," said Mark Obrinsky, senior economist for the Federal National Mortgage Association.
Last week, the average rate on 30-year fixed-rate mortgages was 9% and adjustable rate mortgages went for 6.82%, according to the Federal Home Loan Mortgage Corp.
Analysts said consumers remain worried about their jobs and are reluctant to spend on houses and other big-ticket items. On Tuesday, the Conference Board reported that consumer confidence plunged to what it called "recession levels" in October. "We haven't seen the jobs, we haven't seen the income growth, and we haven't seen the confidence pick up," said Mr. Obrinsky. "I'm not sure we're likely to see much of a decline in housing, but I'm not ready to forecast much of an uptick, either."
A separate report yesterday from the Commerce Department said personal income rose 0.5% in September while spending shot up 0.9%, a much bigger rise than expected. The increase in outlays was concentrated in purchases of durable goods, a category that includes automobiles, and in services. Spending on nondurable goods was flat.
Analysts dismissed the idea that the jump is spending was a sign that consumers are coming out of their shell. "It's an outlier in terms of all the rest of the indicators that we've had," said L. Douglas Lee, chief economist for County NatWest USA.