Tuesday, January 25, 2005

Home Sales Climb to All-Time High in 2004


WASHINGTON - Sales of previously owned homes rose 9.4 percent to an all-time high of 6.68 million units last year while the median price of those homes rose at the fastest clip in 24 years, a real estate trade group said Tuesday.

The National Association of Realtors said that it marked the fourth straight year that home resales have set a record, reflecting a boom in housing generated by some of the lowest mortgage rates in four decades.

The median sales price of an existing home rose to $184,100 last year, up 8.3 percent from 2003 and the fastest gain since home prices jumped by 11.7 percent in 1980.

Sales of new homes are also expected to set a record when the government releases December data next Monday.

Analysts are predicting the housing market will cool off a bit in 2005 as mortgage rates rise in response to a credit tightening campaign by the Federal Reserve (news - web sites), which began boosting interest rates last June in an effort to ward off inflationary pressures.

Some of that impact might being felt already as home sales in December dipped 3.3 percent to a seasonally adjusted annual rate of 6.69 million units. However, that decline came off a monthly record of 6.92 million units at an annual rate set in November.

Housing has been the all-star performer in the current recovery as buyers have enjoyed the lowest mortgage rates many of them have seen in their working lives.

Even with the Fed's rate increases last year, 30-year mortgages averaged 5.84 percent for all of 2004, up only slightly from an average of 5.83 in 2003, which was the lowest annual average ever recorded on a Freddie Mac survey that goes back to 1971.

David Lereah, chief economist for the Realtors, said he believed that rates for 30-year mortgages, which have been falling the past three weeks and currently stand at 5.67 percent, will rise gradually to 6.5 percent by the end of 2005, an increase that he forecast will trim sales of existing homes by about 3 percent to 6.48 million units.

"There is no sign of a downturn," Lereah said. "Home sales will continue at historically high levels and 2005 is expected to be the second-best year on record for the housing market."

Other analysts, however, cautioned that the optimistic forecasts for housing in 2005 depend on mortgage rates. If rates climb more quickly, then sales will slow more than expected, they said.

"We feel that the prospect of higher rates is likely fueling this latest round of housing exuberance," said Merrill Lynch economist Tom Porcelli.

Wall Street, bolstered by the good news on housing and some better-than-expected company earnings reports, was up more than 130 points in afternoon trading.

For December, the 3.3 percent drop in sales reflected weakness in the South, where sales fell by 4.2 percent. Sales were also down in the West, where they dropped 7.2 percent. Sales rose by 1.4 percent in the Northeast and also climbed 1.4 percent in the Midwest.

The median price for an existing home in December was $188,900, an increase of 8.1 percent from December 2003. The median is the midpoint where half the homes sold for more and half for less.