WASHINGTON -- New home sales dropped to a seasonally adjusted annual rate of 864,000 in September, a 1.4% decline from the downwardly revised August rate of 876,000.

"This number shows that there was no dramatic drop in new home sales in September due to the terrorist attacks early in the month," said Bruce Smith, president of the National Association of Home Builders. "We were looking for a slight decline in the September numbers, and this is about what we expected."

The economy was weakening even before the attacks, Smith said, and it is likely that the third and fourth quarters will show a contraction before the economic pace picks up again early next year. The housing sector is also expected to lose some ground in the fourth quarter.

"Even with the recent and expected declines, 2001 should still turn out quite well for housing, with home sales for the year around record levels," Smith said, adding that current financial market conditions are very favorable forhome buyers.

"The mortgage interest rate for fixed-rate loans stands at about 6.6%, and we think it will stay around this level through the end of the year.”