New-home sales jumped 5.7 percent in November to the highest monthly level on record as house hunters -- motivated by some of the lowest mortgage rates seen in decades -- turned into home buyers.
The Commerce Department reported Friday that sales of new single-family homes climbed to a seasonally adjusted annual rate of 1.07 million in November, representing a 5.7 percent increase from October's level.
November's performance suprised analysts who were forecasting sales to go down.
New-home sales dropped by 4 percent in October to a seasonally adjusted rate of 1.01 million, but even with the decline sales were at a brisk level.
The housing market is one of the bright spots of this year's uneven economic recovery, due largely to low mortgage rates.
In November, the average interest rate on a 30-year fixed-rate mortgage was 6.07 percent, down from 6.66 percent for the same month a year ago. This week, rates on 30-year mortgages dropped to a new low of 5.93 percent, Freddie Mac, the mortgage giant reported Thursday.
Low mortgage rates this year have been feeding a flurry of home mortgage refinancing activity. The extra monthly cash consumers are saving by refinancing their mortgages at lower interest rates is helping to support consumer spending, which has been the main force keeping the economy going this year.
"Applications for refinancing, while off their peaks, remains high," Federal Reserve Chairman Alan Greenspan said in a speech last week. "Moreover, simply processing the backlog of earlier applications will take some time, and this factor alone suggests continued significant refinancing originations and cash-outs into the early months of 2003," he added.
Another factor motivating home buyers: Solid appreciation in housing values. That offers people an attractive investment, especially given the turbulent stock market, economists say.
All these positive factors supporting consumer spending are helping to offset some negative ones, including a stagnant job market.
Keeping a close eye on the economic recovery, the Federal Reserve earlier this month decided to hold a key interest rate steady at a 41-year low of 1.25 percent. Economists believe the Fed will keep rates at that low level at its next meeting in late January.
By keeping rates low, Fed policy-makers hope to keep consumers spending and induce businesses to boost investment, forces that would help economic growth.
By region, new-home sales surged by 41.2 percent in November from the previous month to a seasonally adjusted rate of 257,000 in the Midwest. In the South, sales rose 2.4 percent to a pace of 475,000. But in the Northeast, sales plunged 26.7 percent to a rate of 44,000 and in the West they dipped by 3.9 percent to a pace of 293,000.
The average price of a new home in November was $218,900, representing a 5.8 percent increase from the average price for the same month last year.
But November's average home price was down from the previous month. November's average new-home price of $218,900 marked a 2.9 percent decline from October's average price of $225,500.
The economy -- knocked down by last year's recession -- has been slowly getting back on its feet this year. But economic growth has been characterized by a seesaw pattern.
While consumers have been keeping the economy alive, businesses -- worried about profits and economic uncertainties, including a war with Iraq -- have been reluctant to make big investments, a key factor restraining the recovery.