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Housing Remains Hot

Washington — The broad U.S. housing market turned in an unexpectedly strong performance during April, defying industry forecasts of a modest cooling off after a record-breaking 2004.

Housing starts and existing home sales both moved sharply higher, while sales of costly new homes, which account for only 12 percent of the market, were virtually flat, inching up just 0.2 percent.

Rebounding from a deep 17.6 percent slide during March, housing starts recovered much of the prior-month decline, advancing 11 percent, to a seasonally adjusted level of 2 million units, the Commerce Department reported. But housing starts are still 8.5 percent beneath their recent high-water mark of 2.2 million units set in February.

Starts were mixed across the country, rising 25 percent in the South, but skidding 17.8 percent in the Northeast, hampered by wet weather.

David Seiders, chief economist of the National Association of Home Builders, commented, “This should dispel any further concerns about a soft patch in the economy. Following lackluster readings in March, the latest unemployment, retail sales and trade numbers are all better than expected. The economy and housing market are still fundamentally solid.”

Sales of existing homes, by far the largest slice of the housing pie — about 70 percent of the total — rose 4.5 percent, to an annualized level of 7.2 million, a new record, the National Association of Realtors (NAR) reported. The trade group had been predicting a modest slowing trend this year. David Lereah, NAR chief economist, said, “A new record is a bit unexpected, but so is the performance of mortgage interest rates, which have been lower than forecast. When we look at recent job gains, we see all the positive factors coming together to coincide with a powerful demographic demand for housing.”

Driving the demand for homes, mortgage rates remain at persistently low levels, and actually fell slightly in April. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 5.86 percent in April, down from 5.93 percent in March. The rate is virtually unchanged from the 5.83 percent of April 2004. And rates crept even lower, down to 5.71 percent moving into May.

On a more worrisome note, and raising questions about a possible market “bubble,” the price of existing homes continued to soar. The national median existing-home price for all housing types rose 15.1 percent from year-ago levels to $206,000, up from $179,000 during April 2004. The NAR said that was the strongest increase in almost a quarter-century, since a 15.6 percent increase in November 1980.

The only soft number came out of the market for more costly new homes, where sales barely budged, edging up just 0.2 percent, to a seasonally adjusted level of 1.3 million units. Even then, just one region of the country, the Northeast, was responsible for virtually all of what little gain there was, with sales rocketing up 37.2 percent, the Commerce Department reported. Sales in the West rose 2.8 percent, but sales fell off 5.3 percent in the South and 0.5 percent in the Midwest.

Housing By Region
Month-To-Month % Change

EXISTING HOME SALES HOUSING STARTS NEW HOME SALES
Source: U.S. Department of Commerce and National Association of Realtors
Northeast 4.3% -17.8% 37.2%
Midwest 5.8 6.2 -0.5
South 7.0 25.0 -5.3
West 0.0 2.5 2.8


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