Sluggish home sales that had picked up lately as mortgage rates fell are under a new threat from rising interest rates resulting from the Iraqi invasion of Kuwait, analysts said this week.
"The single factor that affects housing nationally is mortgage financing," said John A. Tuccillo, chief economist with the National Association of Realtors.
Tuccillo and other economists said that a worldwide embargo on oil from Iraq and occupied Kuwait will result in price increases for most goods, including a likely rise in mortgage rates of 0.25 to 0.50 percentage points in the near term.
"If they go up 0.50 now and the thing is resolved in a few weeks, they will go down 0.50 and will continue going down," Tuccillo predicted. "If the crisis lingers on ... mortgage rates are going to go up and they'll stay up and housing's going to be in pretty bad shape."
Robert Van Order, chief economist with the Federal Home Loan Mortgage Corp. (Freddie Mac), said a 0.25 percentage point increase in rates would result in an additional mortgage payment of $25 a month on a $100,000 house.
According to weekly surveys by Freddie Mac, the average cost fixed-rate, 30-year mortgage fell from its 1990 peak of 10.67 percent in May to 9.84 percent in the last week. The rates do not include add-on fees known as points.
Realtors President Norman D. Flynn said that when mortgage rates began falling in May, buyers resumed house hunting, particularly in areas with relatively affordable prices.
As a result, the Commerce Department reported gains in new home sales during May and June after five consecutive monthly declines.
The Realtors said sales of existing homes, which represent about 80 percent of the housing market, posted a 1.2 percent increase in June. It was their first advance in seven months.
But the decline in existing home sales in April and May resulted in a 0.5 percent drop in overall resales during the second quarter compared with the same period of 1989, the Realtors said.
According to their most recent survey, second-quarter resales totaled a seasonally adjusted annual rate of 3.68 million units, compared with 3.70 million units during the April-June period last year. Sales dropped 2.7 percent from the first quarter to the second.
By region, sales were off 14.5 percent to 650,000 units at an annual rate in the Northeast and 3.1 percent to 620,000 units in the West. Sales gained 4.4 percent to 1.41 million units in the South and 4.2 percent to 990,000 units in the Midwest.
The Realtors said that in addition to rising mortgage rates, they were concerned over the effect of the government's sale of a large volume of properties in the Southwest that had been acquired from failed savings and loans.