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Declining mortgage rates cause record home sales 2005 Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=a_HUVRNZ0OD0&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=a_HUVRNZ0OD0&refer=home
U.S. Economy: Incomes, Low Rate Bolstering Existing Home Sales
June 23 (Bloomberg) -- Declining borrowing costs and rising incomes generated sales of U.S. previously owned homes at the second-fastest rate on record in May and pushed prices to an all- time high.
Purchases totaled an annualized 7.13 million, compared with April's record 7.18 million pace, the National Association of Realtors said today in Washington. The median home sales price increased to $207,000 from $205,000.
``This market is red hot,'' said David Lereah, chief economist at the Realtors group. ``I don't see an end to this.''
The association maintained its forecast for a fifth straight record year for sales. Mortgage rates fell in April and May, reaching a 14-month low earlier this month, stoking demand. The median selling price has increased 12.5 percent in the last year.
First-time jobless claims fell last week to the lowest in two months, the Labor Department said today, a sign job and income growth are helping boost housing demand.
The strength in sales and higher selling prices may fuel concern of Federal Reserve policy makers and other economists that the gains may be unsustainable.
``What I'm hearing is houses that were on the market for a day or two last year are out there a little longer,'' said Bob Moulton, president of Americana Mortgage Group Inc. in Manhasset, New York, in an interview. ``Inventory is a little higher and the houses are sitting maybe a couple of weeks where they would get purchases immediately in last year's market.''
The supply of homes available for sale, another gauge of housing demand, rose to 4.3 months' worth in May from 4.1 months' worth the previous month. While May's inventory was the highest since November, it matches the level for all of 2004.
Supply
``It's a white-hot market, but it's not a crazy market because it's being supported by fundamentals,'' said James Gillespie, chief executive of Parsippany, New Jersey-based Coldwell Banker Real Estate. ``We have a growing population, near- record-low interest rates, and an undersupply of inventory.''
May's supply figure, the time it would take to sell off existing stock if nothing else came on the market, is below the 6 months level that would be a balanced market where supply and demand were at the same level, Gillespie said.
Resales were forecast to fall to 7.15 million at an annual rate, according to the median of 56 estimates in a Bloomberg News survey of economists. Estimates ranged from 6.90 million to 7.35 million.
Jobless Claims
First-time claims for state unemployment insurance declined by 20,000 last week to 314,000, the lowest level in two months, the Labor Department said today. Signs of labor market strength pushed up Treasury yields.
The yield on the benchmark 10-year note rose 3 basis points, or 0.03 percentage point, to 3.97 percent by 10:30 a.m. in New York, according to bond broker Cantor Fitzgerald LP.
Resales were forecast to fall to 7.15 million at an annual rate, according to the median of 56 estimates in a Bloomberg News survey of economists. Estimates ranged from 6.90 million to 7.35 million.
Sales of existing single-family houses, condos and co-ops will rise to 6.89 million this year from last year's all-time high 6.78 million, according to the Realtors group's latest forecast.
Regions
Single-family houses fell 1.1 percent to a 6.21 million-unit pace from 6.28 million in April. Sales of condominiums and co- operatively owned apartments rose 2.2 percent to 922,000.
Sales fell in two regions and rose in one. Purchases dropped 3 percent in the Midwest to 1.59 million and 0.7 percent in the South to 2.72 million. They rose 1.9 percent in the West to 1.63 million. Sales held at 1.2 million in the Northeast.
Previously owned homes account for about 85 percent of transactions. Sales of new homes, which are to be reported by the Commerce Department tomorrow, are projected to rise to a 1.320 million rate, surpassing April's 1.316 million as the most ever.
Sales of new homes are tabulated when contracts are signed, while existing home sales are tabulated at closing, often a month or two after the contract. Contracts to buy previously owned U.S. homes rose to a record in April, the National Association of Realtors said June 1.
Mortgage Rates
``We've seen just a record level of single-family construction and home sales here in the first part of 2005, and it's been fueled by low mortgage rates,'' said Frank Nothaft, chief economist at Freddie Mac, in a June 20 interview. ``We saw mortgage rates ease again over the last couple of months.''
Thirty-year mortgage rates have exceeded 6 percent for only two weeks this year, and they dropped to 5.56 percent in the week ended June 10, the lowest since April of last year, according to Freddie Mac, the second-biggest purchaser of U.S. mortgages. The average rate for the past decade is about 7 percent.
Higher incomes are also boosting demand. Workers' average hourly earnings in May rose 0.2 percent after a 0.3 percent gain the previous month and average weekly earnings also rose, the Labor Department said June 3. The jobless rate fell to 5.1 percent last month from 5.2 percent.
Housing markets ``are fueled by income growth and job growth,'' said Stuart Miller, chief executive officer of Miami- based Lennar Corp., the third-largest U.S. homebuilder by stock market value, in a June 21 interview. ``We think that it's a fundamentally strong market.''
Overheating
Surging home prices and increased speculation have raised concern that some markets may overheat. Increases in prices are outstripping those of personal incomes in more than three quarters of the top 52 U.S. cities, according to a report this week from Merrill Lynch & Co.
``If housing prices declined by even small percentages, that's very much of a negative relative to where we have been in the past,'' said Bill Gross, chief investment officer at Pacific Investment Management Co. and manager of the world's biggest bond fund, in a June 21 interview.
Fed Governor Mark Olson said policy makers are watching the issue ``very closely.''
``There are some markets where the increase in value is unsustainable,'' Olson said in response to a question after he testified on June 21 to Congress about banking regulation. ``There clearly is some froth in some markets but we still don't see a nationwide housing bubble.''
There are signs that the jump in prices isn't yet straining most homebuyers. The number of U.S. homeowners making late payments on their mortgages fell in the first quarter, the Washington-based Mortgage Bankers Association said in a report this week.
Last Updated: June 23, 2005 11:21 EDT
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