WASHINGTON - New home sales rebounded strongly in March, the government reported Friday, as analysts predicted continued strength in the next few months despite rising interest rates.
"There's still pent-up demand in the housing market," said Jim O'Sullivan, an economist with J.P. Morgan & Co.
New single-family home sales grew 11.1% in March to a seasonally adjusted annual rate of 739,000 - the largest monthly gain in six months and well above the 8% increase expected by market analysts.
Sales in February were revised up to show a 3.9% increase, compared with the previously reported rise of 1.9%. Abnormally bad weather was blamed for depressed sales in both January and February.
Economists anticipate that home sales will remain strong at least through the second quarter, thanks to continued gains in consumer confidence, employment, and household income.
Mark Obrinsky, senior economist with the Federal National Mortgage Association, predicted that sales will remain in the 700,000 to 750,000 range during the next three months, despite rising mortgage rates, which rose quite dramatically in February and March.
He said rates for 30-year fixed-rate mortgages surged from around 7.0% in early February to above 8% in the first week of April.
Many analysts say that rising mortgage rates cause sales to increase in the short-term because fence-sitters are scared into the market before they might otherwise take the plunge. However, Obrinsky said, the phenomenon is hard to prove, and rates rose so fast that the rise probably priced as many people out of the market as it drew in. He and other economists predicted that home sales will peak sometimes around the middle of the year, and then gradually decline as higher rates take their toll and current demand is met.
New home sales in March were very mixed across regions. Sales surged 38% in the Northeast and 19.6% in the South; meanwhile, they edged up 1.4% in the West and fell 0.8% in the Midwest.
Commerce reported separately Friday that personal income grew 0.6% in March, and personal spending advanced 0.4%.
The gains were in line with expectations and followed a 1.8% surge in income in February and a 1.3% gain in spending. February's income gain was greatly affected by special factors, such as a rebound from losses related to the Los Angeles earthquake. Excluding special factors, personal income was up a much less impressive 0.4% in February.
Analysts generally viewed Friday's report favorably, saying the income gain was in line with the latest employment and growth reports.
Daryl Delano, senior economist with Cahners Economics Inc., said the report shows that the economy is chugging along - but not anywhere near the point of overheating.
Disposable income grew 0.6% in March, compared to a 2% increase in February. However, wages and salaries increased $14.5 billion in March, up from a $5 billion advance in February. Delano said this is an important sign of strength.
Personal spending accounts for roughly two-thirds of total gross domestic product. Analysts predicted that spending would remain relatively strong in the second quarter, higher than the first quarter but not matching the boom in the fourth quarter of last year.
"I expect it to be good, not great," Delano said.
However, continued robust job growth will cause household purchases to be higher than what most economists now anticipate, O'Sullivan said. He predicted personal spending would gain at about a 4% annual rate this quarter, helped by a strong housing market.