Existing Home Sales 2nd Highest in History

Bill's Pre-Comment: More good news for The President

Existing Home Sales 2nd Highest in History

By MARTIN CRUTSINGER, AP Economics Writer
Thu Jun 23, 6:24 PM ET

WASHINGTON - Sales of existing homes slowed slightly in May but still came in at the second-highest level on record, with home prices hitting an all-time high.

Sales of previously owned homes and condominiums edged down 0.7 percent last month, the National Association of Realtors reported Thursday. The small decline left sales at a seasonally adjusted annual rate of 7.13 million units, down only slightly from the 7.18 million sales pace in April, which had been an all-time high.

Even with the small drop in sales, home prices moved higher, to an all-time record of $207,000 for the median price, the point where half the homes sold for more and half for less.

The new report was likely to do little to lessen concerns that the housing market in some parts of the country is caught in the grip of a speculative fever similar to the stock market bubble of the late 1990s before prices came crashing back to earth.

Federal Reserve Chairman Alan Greenspan, while discounting the possibility of a national housing bubble, has talked of "froth" in local markets that have seen sizable run-ups in prices over the past year. He has also expressed concerns that home buyers are using types of mortgages that let them purchase more expensive homes with less of a downpayment, leaving them vulnerable if prices do fall sharply.

David Lereah, chief economist of the Realtors group, said he too was concerned about the reliance on interest-only mortgages and other types of mortgages offered with low down payments.

"I worry about a high level of questionable loans in those bubble areas. That could make those markets more fragile," Lereah said.

In other economic news, the number of Americans filing new applications for unemployment benefits fell sharply last week, signaling that job growth should remain strong in the months ahead.

The Labor Department reported that new claims for unemployment benefits fell by 20,000 last week to total 314,000, the lowest level in two months.

The good news on home sales and jobless claims was ignored on Wall Street, where investors focused instead on a poor earnings report from FedEx Corp. and on surging oil prices, which briefly moved past the psychologically important $60 per barrel mark for the first time.

The Dow Jones industrial average lost 166.49 points to close at 10,421.44.

The housing market is on track to post another record year in sales of both existing and new homes. Analysts had predicted a slight decline in activity this year after sales of new and existing homes set records for four straight years.

For May, sales of single-family homes declined 1.1 percent to an annual rate of 6.21 million units. Sales of condominiums rose 2.2 percent to an annual rate of 922,000 units.

Sales have confounded experts because mortgage rates have stayed near rock-bottom levels.

Normally mortgage rates and other long-term rates would be rising, reflecting the yearlong effort by the Federal Reserve to boost short-term interest rates to control inflation.

Instead, mortgage rates have fallen for most of this year and financial markets have kept long-term rates low, a development that Greenspan has labeled a "conundrum."

Freddie Mac reported in its weekly survey that the average rate on a 30-year fixed rate mortgage declined to 5.57 percent this week, the 10th drop in the past 12 weeks.

"This market is red hot," Lereah said. He predicted sales would remain strong through the summer as mortgage rates rise only gradually from near historic lows.

By region of the country, sales were down 3 percent in the Midwest and fell 0.7 percent in the South. Sales were flat in the Northeast and rose by 1.9 percent in the West.

Greenspan told Congress two weeks ago that he believed the economy was on a "reasonably firm footing," with inflation remaining under control and economic growth expected to remain strong in coming months.

Those comments were seen as further evidence that the Federal Reserve, which has raised interest rates eight times over the past year, will boost rates again when policy-makers meet next week — and will keep raising rates at a gradual pace through the summer and perhaps well into the fall.

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On the Net:

Federal Reserve: http://www.federalreserve.gov

National Association of Realtors: http://www.realtor.org/

Labor Department: http://www.dol.gov