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Sales of homes hit record as prices soar { May 24 2005 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2005/05/24/business/24cnd-home.htmlhttp://www.nytimes.com/2005/05/24/business/24cnd-home.html
May 24, 2005
Sales of Existing Homes Hit Record as Prices Soar
By JENNIFER BAYOT
Sales of existing homes swelled 4.5 percent to a record in April, and prices climbed at the fastest rate in almost 25 years, the National Association of Realtors reported today, defying predictions of a slowdown and adding to some analysts' concerns that the market is overheating.
Low mortgage rates were responsible for the sharp rise in demand, economists said, but the cheap cost of borrowing may also be encouraging people to buy in hopes of selling quickly at a profit.
Anthony Chan, senior economist at J.P. Morgan Asset Management, predicted that home buying would stay strong until mortgage rates jump, and that speculative buying, in particular, would remain attractive until then. "For the most part, the strategy has been a winning strategy and people will continue to do it" until they start losing money, he said.
Sales of existing homes rose in April to an annual pace of 7.18 million, up from 6.87 million in March, as purchases in the South, Midwest and Northeast jumped to record annual rates. The overall sales rate set a record, surpassing the previous annualized high of 7.02 million in June 2004.
Meanwhile, the nationwide median price on an existing home was $206,000 in April, up 15.1 percent from a year earlier - the steepest increase since November 1980, when the median price rose 15.6 percent.
On single-family homes, the median price also increased 15.1 percent in April from a year earlier, to $203,800. Sales climbed 4.5 percent to an annual pace of 6.28 million, from 6.01 million in March.
Because the data are recorded at the closing of a home purchase, they generally reflect contracts and prices reached in March and February.
"We are now seeing another wave of Spring buying," Joshua Shapiro, chief United States economist at the economic research firm MFR Inc., wrote in a research note to clients. He compared the activity to the rush of purchases made early last year by people who had waited to buy and had finally decided to do so. "Is this also fence-sitting buying or can this pace be maintained?" he asked.
As long as mortgage rates stay low, Mr. Shapiro said, the buying - and borrowing - will persist. "We think speculation rather than demographics is driving a substantial portion of sales," he said.
Though Alan Greenspan, the Federal Reserve's chairman, has resisted characterizing the housing market as a bubble, he warned last week that parts of the country showed signs of "froth."
"That's an explosive word," Mr. Chan of J.P. Morgan said. "I think at this point it's not a critical concern, but it's definitely a concern."
Still, the current bustle of the housing market has persuaded Adam Slone, president of a Miami-based recruiting firm, to attempt to sell his stake in a condominium still in construction in Washington's Logan Circle.
"I'd rather just take the profit, because the market has to start calming down," he said, estimating that he would pocket at least $200,000 on the sale. "I don't know if we're at the top of the market, but we're happy at the profit we would have."
Richard Yamarone, director of economic research at Argus Research, argued that increases in immigration and other demographic shifts were driving home sales. Moreover, the expense and effort of buying a home makes speculation less likely, he said, certainly less likely than speculation in the stock market.
"The purchase of a home isn't analogous to buying a candy bar," he wrote in an e-mail. "People plan, save, investigate and invest before entering the home-buying market."
He said wealthy investors were the main people speculating on homes, adding, "What does it matter if a 'professional home flipper' gets burned in a housing downturn?"
He calculated that housing would flourish as long as the rate on 30-year mortgages remained below 7.2 percent. But Mr. Chan at J.P. Morgan predicted that buying would drop off as mortgage rates near 6.5 percent, while Mr. Shapiro of MFR said that "even modestly higher rates" would dampen demand.
The average nationwide rate on 30-year mortgages is currently 5.73 percent, lower than it was in March and scarcely half a point higher than its four-decade low of 5.21 percent in June 2003, according to the Mortgage Bankers Association.
Those rates may be tempting even middle-income investors. A.W. Pickel III, immediate past president of the National Association of Mortgage Brokers and president of the Leader Mortgage Company in Lenexa, Kan., estimated that 25 to 30 percent of the mortgages his company had processed so far this year were for investment properties.
"I think there's going to be some disappointed people in a few years," he said, "because I don't think house appreciation can continue at the same rate, especially on the East and West Coasts."
Copyright 2005 The New York Times Company
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