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June sales high with lowest average 30 year mortgage Original Source Link: (May no longer be active)
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U.S. June Previously Owned Home Sales Rise to Record (Update5)
July 25 (Bloomberg) -- U.S. sales of existing homes rose a surprising 2.7 percent to a record in June as the lowest average 30-year fixed mortgage rates in more than a year helped drive prices to an all-time high.
``The red hot housing market just got hotter,'' said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. ``This is going to boost spending, job creation and economic growth in the second half of the year.''
Sales increased to an annual rate of 7.33 million, surpassing the previous record of 7.18 million reached in April, the National Association of Realtors said today in Washington. The median home sales price rose to $219,000 from May's $206,000, a 6.3 percent jump that was the biggest on record.
The sales jump exceeded all estimates in a Bloomberg News economist survey and the 14.7 percent price gain from June 2004 was the largest since November 1980. Mortgage rates have been holding just above a four-decade low, stoking demand and leading economists including Federal Reserve Chairman Alan Greenspan to say the price gains in some areas may be unsustainable.
While prices have risen five times as much as inflation, incomes are rising fast enough and mortgage rates are low enough to keep homes affordable. The Realtors group reported on June 29 that its housing affordability index rose to 122.8 in May from 122.3 a month earlier. Readings greater than 100 signal a family making the median income has enough money to qualify for the median-priced home at prevailing mortgage rates. The index has averaged 135 in the last two years.
Regional Pricing
Prices rose in all four U.S. regions, with the West and Northeast showing the largest year-over-year gains, today's report showed. In the West, which includes California and Nevada, the median price of $317,000 is up 17.4 percent from June of last year. Northeastern states such as New York, New Jersey and Connecticut have seen a 13.6 percent jump in the median price, to $250,000, from the same time in 2004.
The median selling prices of previously owned homes in the Midwest and South are cheapest, at $177,000 and $193,000, respectively.
``We haven't had a single year since 1950 where housing prices declined nationally, but there are many countries in the world where there are housing bubbles,'' said Susan Wachter, a professor of real estate at the University of Pennsylvania and former assistant secretary of Housing and Urban Development, in an interview. ``We're not immune going forward.''
Rates that are close to the four-decade low of 5.21 percent, reached in June 2003, are bolstering sales. June's average 30-year rate of 5.6 percent was the lowest since March of last year, according to Freddie Mac, the No. 2 buyer of mortgages.
`Hot Right Now'
Existing home sales in June were forecast to rise to an annual rate of 7.15 million units from a previously reported 7.13 million in May, according to the median estimate in a Bloomberg News survey of 45 economists. The high forecast was 7.27 million.
Sales rose in all four regions, with all but the West setting records. Purchases increased 5.5 percent in the West to an annual rate of 1.73 million, 3.4 percent in the Northeast to 1.23 million, 1.9 percent in the Midwest to 1.63 million, and 1.1 percent in the South to 2.74 million.
``The housing markets are hot right now,'' said David Lereah, chief economist at the Realtors group. ``I do expect demand to continue at a strong pace, although I do not see us sustaining'' these annual rates.
Fifth Straight Record
Home sales are forecast to rise to a fifth straight annual record, suggesting housing will keep adding to economic growth this year. The real estate and construction industries helped support an economy that probably grew at a 3.5 percent annual rate in the second quarter, the median estimate of 60 economists surveyed by Bloomberg News.
Such growth compares with an average quarterly gain of 3.2 percent over the past two decades and 3.8 percent in the first three months of this year. Home construction added 0.64 percentage point to first-quarter growth, the most since the second quarter of last year, Commerce Department data show.
The yield on the Treasury's 4 1/8 percent note maturing in May 2015 fell 1/8, pushing the yield up 2 basis points to 4.23 percent at 1:17 p.m. in New York.
The existing home sales data are based on contract closings for existing single-family houses, condominiums and cooperatively owned apartments. Pending resales, which track contract signings that precede closings by a month or two, reached their highest level of the year in April.
Single-Family Homes
Sales of previously owned single-family houses increased 2.4 percent in June to a 6.37 million-unit pace from 6.22 million in May, today's report showed. Sales of condominiums and co- operatively owned apartments rose 4.5 percent to 960,000.
The supply of homes available for sale, another gauge of housing demand, held at 4.3 months' worth last month.
``Things are really going well,'' said Daryl Jesperson, chief executive officer of Re/Max International Inc. in Greenwood Village, Colorado. ``There's no question that we're going to set another record this year.'' Re/Max is a real estate brokerage franchiser with more than 100,000 agents in more than 50 countries.
Before today's report, the Realtors group bumped up its forecast of 6.64 million from earlier this year in anticipation of higher mortgage rates as Fed policy makers raised their target for overnight bank lending. Instead, borrowing costs have declined.
Sales of previously owned homes are forecast to increase 2.8 percent this year to 6.97 million, exceeding the record 6.78 million in 2004, the Realtors group said July 13. Such demand is fueling price gains, prompting some buyers to resort to interest- only mortgages to finance their purchases.
Fed
``Interest rates are the main force behind this,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in an interview. ``Interest rates have stayed low, and because of that the housing market has remained strong.''
Central bankers have boosted the target for the overnight bank lending rate by 2.25 percentage points over the last nine policy meetings. At the same time, the yield on the benchmark 10- year Treasury note, to which other borrowing costs are tied, has declined almost 50 basis points.
The average rate on a 30-year fixed mortgage in June was down 65 basis points from 6.25 percent in the week ended June 25, 2004, just before the Fed's first rate increase. A basis point is 0.01 percentage point.
Fed staff made a presentation on housing valuations at the central bank's two-day policy meeting in June. Policy makers discussed the danger of home prices rising faster than incomes and the potential ``challenges'' both to borrowers and lenders from ``riskier types of mortgages,'' minutes of their June 29-30 meeting showed.
`Froth'
Home prices nationally rose 12.5 percent in the first quarter from a year earlier, according to the Office of Federal Housing Enterprise Oversight.
``Whether home prices on average for the nation as a whole are overvalued relative to underlying determinants is difficult to ascertain,'' Greenspan said last week in testimony to Congress. ``There do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.''
``The exceptionally low interest rates on 10-year Treasury notes, and hence on home mortgages, have been a major factor in the steep climb in home prices,'' Greenspan said last week.
Last Updated: July 25, 2005 13:20 EDT
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