Existing homes were sold at the fastest pace in history last month, and the median price set a record as well. But some private economists predicted housing may be nearing its peak as mortgage rates begin to rise.
In June, existing homes sold at an annual rate of 7.33 million units, an all-time high and an increase of 2.7 percent from the seasonally adjusted sales pace in May, according to a report Monday from the National Association of Realtors.
The gain reflected a 2.4 percent rise in sales of single-family homes, which climbed to a record of 6.37 million units at an annual rate. Sales of condominiums also set a record, rising by 4.5 percent from the May level to an annual rate of 966,000 units in June.
The strength in sales helped pushed the median price of an existing home to a new record of $219,000, a gain of 14.7 percent from the median, or midpoint, for homes sold a year ago. That was the biggest jump in prices in nearly 25 years, since a 15.6 percent year-over-year increase in November 1980.
Gains in prices of that magnitude have spurred concerns that housing markets in parts of the country may be in the grips of what Federal Reserve Chairman Alan Greenspan last week called a “speculative fervor” that is pushing home prices to unsustainable levels similar to the boom in stock prices in the late 1990s.
“Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise,” said David Lereah, the Realtors’ chief economist.
Lereah said the boom in housing is being driven by mortgage rates which, defying expectations, have remained near rock-bottom levels this year even as the Federal Reserve has continued to raise short-term interest rates.
But other analysts noted that mortgage rates, as measured by Freddie Mac’s nationwide survey, have risen for three straight weeks and now stand at 5.73 percent for a 30-year mortgage, a development they expect will start to dampen both demand and prices.
“We are not looking for a burst bubble nationally, but we do expect things to slow down,” said Beth Ann Bovino, an economist at Standard & Poor’s in New York.
The record sales pace in June came as a surprise as analysts had forecast that sales would be unchanged following a small 0.6 percent decline in May after existing home sales had hit their previous record of 7.18 million units in April.
For June, sales were strong in all regions of the country. The gains were led by a 5.5 percent increase in the West to an annual sales rate of 1.73 million units. Sales were up 3.4 percent in the Northeast, 1.9 percent in the Midwest and 1.1 percent in the South.
Lereah said as long as rates continue to rise slowly, sales of both new and existing homes should decline only slightly in the second half of the year.
Sales of existing and new homes have set records in the past four years and many analysts are looking for both sales groups to climb to new records this year as well.
The number of existing homes available for sale at the end of June rose by 3.8 percent to 2.65 million units, a 4.3 month supply at the June sales pace.
Realtors’ president Al Mansell of Salt Lake City, Utah, predicted pressures on home prices would ease as sales slowed and the level of available supplies increased.
“Home prices continue to be bid-up in tight markets across the country,” he said. “When the housing market eventually slows from red-hot levels, we should see some cooling in price gains.”
In his midyear economic report to Congress last week, Greenspan expressed concerns that some homeowners could be facing “individual disaster” if prices in their areas decline sharply, leaving them with mortgages that cost more than the lowered value of their homes.
Greenspan particularly singled out new types of mortgage instruments such as interest-only loans which allow consumers to buy more expensive homes than they normally could afford.