Home sales are still strong

Sales of existing homes set a record in June with national home prices shooting up at the fastest pace in nearly 25 years.

The National Assn. of Realtors reported that existing homes were sold at a seasonally adjusted annual rate of 7.33 million units last month, a gain of 2.7% from the May sales pace.

The torrid sales pace helped push the national median price of an existing home up to a record of $219,000 last month, a gain of 14.7% from the median, or midpoint, for prices a year ago. That was the biggest jump in prices since November 1980.

The June performance was better than expected as the nation’s housing market continued to flash signals that some parts of the country could be in the grip of what Federal Reserve Chairman Alan Greenspan last week called a “speculative fervor.” The concern is that housing prices are rising at an unsustainable pace and that prices could start declining in some parts of the country if rising interest rates begin to weaken demand. This could spell trouble for homeowners who find the value of their homes falling below the value of the mortgage they obtained to finance the purchase.

For June, sales were strong in all regions of the country. Many economists had expected that sales would be flat, given the strong increases in previous months.

“Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise,” said David Lereah, NAR’s chief economist. Lereah said the housing boom is being driven by mortgage rates that, defying expectations, have remained near rock-bottom levels even as the Federal Reserve has continued to raise short-term interest rates. Lereah predicted that sales will decline only slightly in the second half of the year if interest rates don’t rise suddenly.