Sep 26, 2002 By Jeannine Aversa Associated Press Writer 3 min read

WASHINGTON (AP) – Sales of previously owned homes dipped by 1.7 percent in August as worries about a possible war with Iraq and eroding confidence in the American economy made people a bit wary of making a big purchase. The National Association of Realtors reported Wednesday that sales of existing homes fell to a seasonally adjusted annual rate of 5.28 million units, representing a 1.7 percent drop from July.

Even with the decline, David Lereah, the association’s chief economist, said the level of sales was still quite brisk and that existing-home sales are on track to set a record this year.

“It is still a very healthy pace but certainly we are winding down from the boom,” Lereah said.

Even as the economic recovery has faltered, home sales have been robust this year, powered by low mortgage rates.

Although the drop in August surprised analysts who expected sales to go up, economists said such brisk housing activity seen this year just couldn’t be maintained. Existing-home sales rose by a sizable 5.3 percent in July.

On Wall Street, the Dow Jones industrial average was up 10 points and the Nasdaq index gained 7 points in morning trading.

Economists said that worries about a conflict with Iraq and eroding consumer confidence in the economy contributed to the decline last month. Consumer confidence sank to a 10-month low in September, marking the fourth straight monthly decline, the Conference Board reported on Tuesday.

“The reason demand has slipped a bit is due to international uncertainties,” Lereah said.

Wednesday’s economic report suggested that the booming housing market may be losing a little steam, but remains in good shape, economists said.

By region, existing-home sales last month fell by 5.9 percent in the Midwest to a seasonally adjusted annual rate of 1.12 million. In the South, sales dropped by 1.8 percent to a rate of 2.13 million and in the Northeast, they went down by 1.6 percent to a rate of 630,000. But in the West, sales rose 2.2 percent to a rate of 1.40 million.

Housing is one of the struggling economy’s few bright spots and it has been holding up well this year and during last year’s recession because low mortgage rates have been motivating buyers.

The average interest rate on a 30-year fixed rate mortgage in August was 6.29 percent, representing the lowest monthly interest since Freddie Mac, the mortgage company, began its nationwide survey in 1971, the National Association of Realtors said.

That was down from July’s rate of 6.49 percent and well below the average rate of 6.95 percent seen in August last year.

Consumers, whose spending accounts for two-thirds of all economic activity in the United States, have been the main engine for the economy.

Thus far, consumer spending has been supported by low mortgage rates, rising home values and the refinancing boom that has left people with extra cash in their pockets.

Those positive factors have been helping to offset potentially negative ones, including fears about a war with Iraq, the roller-coaster stock market, a stagnant job market and dropping consumer confidence.

In August, the median price of an existing home – the midpoint where half of the homes sold for more and half for less – was $163,600, a 6.4 percent increase from the same month a year ago.

The Federal Reserve decided to hold short-term interest rates steady on Tuesday over the objections of two members, who favored a rate cut, which would have been the first of the year. Economists said that the odds are growing that the Fed will cut rates before the end of this year.