Slow Economy Drives Down January Home Sales

By Jeannine Aversa

Associated Press

WASHINGTON — Existing-home sales plunged in January to their lowest point in a year as consumers’ worries about the economy outweighed the lure of cheaper mortgage rates. Forecasters suggested the economy will experience much slower growth this year than previously thought.

Federal Reserve Chairman Alan Greenspan has said a large determinant in whether the flagging economy slips into recession is how consumer confidence holds up during the slowdown.

Sales of previously occupied homes fell for a second straight month by 6.6 percent, the National Association of Realtors reported Monday. That pushed January’s sales down to a seasonally adjusted annual rate of 4.65 million.

“This results from a decline in consumer confidence and the deteriorating economy,” said David Lereah, the association’s chief economist.

Consumer confidence fell for the fourth month in a row in January, hitting its lowest level in four years.

Economists also believed other factors, including stock market volatility, higher energy prices, and slower job growth, added further drags to create January’s decline in sales.

“Consumers are being cautious. I think they will postpone spending until there is a definitive understanding of the labor market situation. That is, until there is a clear understanding that their jobs are safe and sound,” said Richard Yamarone, economist with Argus Research Corp.

The 4.65 million existing-home sales rate was the lowest level since the January 2000 rate of 4.54 million.

Trying to keep the faltering economy afloat, the Federal Reserve slashed interest rates twice in January, totaling a full percentage point.

The National Association for Business Economics, in a survey released Monday, now said it expects this year’s Gross Domestic Product – the output of goods and services produced within the United States – to clock in at 2 percent, which would mark the weakest performance since 1991, when economic output declined by 0.5 percent. In its November survey, the association estimated a 3.4 percent growth rate for all of this year.

The risk of recession this year rose to 33 percent in the February survey of 34 economic forecasters. That was up from a 20 percent level in the November survey.

“The business outlook has clearly deteriorated, and NABE panelists see rising recession risks,” said business economics association president Richard Berner, who also is chief economist at Morgan Stanley Dean Witter. “However, most forecasters believe that the economy will regain its footing by summer, when moderate growth will return.”

While other parts of the economy, notably manufacturing, have been hurt seriously by the sharp economic slowdown, the housing market has managed to stay fairly solid, in large part because of cheaper mortgage rates.

In January, the average interest rate on a fixed-rate 30-year mortgage was 7.03 percent, down from 7.38 percent in December. In recent weeks, however, mortgage rates have edged up. Last week, the average rate on a 30-year mortgage rose to 7.12 percent.

By region, the West posted the biggest decline in January, with sales falling 9.9 percent to a seasonally adjusted annual rate of 1.28 million. In the Northeast, they decreased by 8.2 percent to a rate of 560,000. In the South, sales fell by 6.8 percent to a rate of 1.79 million, and in the Midwest they dropped by 1 percent to a rate of 1.02 million.