No cooling the housing market yet
Existing sales top forecasts at 7.33 million annual rate; prices post biggest jump since 1980.
July 25, 2005: 10:43 AM EDT
NEW YORK (CNN/Money) - Existing home sales hit a new record in June in an industry report out Monday, as the real estate market remains hotter than Wall Street expectations, sending housing prices to their biggest increase in 25 years.
The National Association of Realtors reported that sales of existing homes came in at an annual pace of 7.33 million homes in June, compared with the revised 7.14 million pace in May. Economists surveyed by Briefing.com had forecast that sales would remain little changed at the 7.15 million pace in June.
The previous sales record was set in April, when sales hit the 7.18 million pace. The second quarter therefore has seen the three strongest sales months make up its three sales readings.
"Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise," said a statement from David Lereah, NAR's chief economist. "We've been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream."
The national median existing-home price for all housing types was another record of $219,000 in June. That was up 14.7 percent, the biggest year-over-year jump since November 1980. The June price was up 6 percent from the reading in May. The median price is the point at which half the home sell for more and half sell for less.
The average housing price, which is typically higher due to the impact of upper-end home sales, was $268,000, again another record, and up 9.4 percent from a year ago and up 4 percent from May.
Mortgage rates suggest the strong sales could continue, at least in the short-term. The existing home sales data is based on when home sales close, which typically is a month or two after the sales are agreed to and mortgage rates are locked in.
The average 30-year mortgage rate in June was 5.58 percent, according to mortgage finance firm Freddie Mac. That's the lowest average since March 2004, and could spur more sales that will be reported in July and August reports.
While rates are up in July, they are still below the the April and May averages that fed into this month's strong report.
There has been growing concern among some observers that the rapid increases in housing prices represent a so-called housing bubble that could be at risk of a correction. Even some of those who dismiss the idea of a national housing bubble, such as Federal Reserve Chairman Alan Greenspan, have spoken of numerous local real estate markets being overvalued, giving the overall real estate market a look of "froth."
But even one of the economists who is most convinced that there is a housing bubble said Monday the large jumps in prices and sales in this report do not necessarily a signal that the market has reached a peak.
"Things do seem like they're out of line, but of course I've been seeing warning bells for several years," said Dean Baker, co-director of the Center for Economic and Policy Research.
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