Housing just keeps going and going

Don Hogsett, July 7, 2003

Just when everybody is expecting the housing bubble to burst, pricked by a persistently soft economy, it starts expanding again, and driven by the lowest mortgage rates in a generation, all three segments of the market shot up to recent highs in May, according to data from the Commerce Department and the National Association of Realtors.

Strongest of all was the historically volatile market for new homes, subject to sharp swings up or down, which advanced at a double-digit pace last month, climbing by 12.5 percent to an all-time record high. Now selling at a seasonally adjusted pace of 1,157,000 units, new home sales are at their highest level ever, and have shot up by almost 24 percent from a recent low of 935,000 recorded in February.

And it didn't stop there. Housing starts, a gauge of builder confidence and future housing activity, climbed by 6.1 percent. But even with last month's strong increase, starts are still off by 5.3 percent from a 13-month high recorded in January.

Existing home sales, by far the biggest segment of the market, attracting entry-level buyers to moderately priced starter homes, inched up at a more moderate pace, rising by 1.2 percent to a seasonally adjusted annual rate of 5.9 million units. Existing home sales are now at their highest level since January.

David Lereah, chief economist of the NAR, said the current level of sales is defying all expectations. "The pace of home sales so far this year has been higher than projected, and we still expect sales activity to ease a little but to end this year with a new annual record."

It all comes down to low interest rates, said Lereah, "which have increased the purchasing power for a growing number of households. Strong activity by first-time buyers is the key to the overall health of the market because it provides liquidity for people wishing to trade to another home."

Housing by region
Month-to-month % change

Existing home sales Housing starts New home sales
Northeast +3.0% -1.3% -9.0%
Midwest +5.5 +14.0 +1.6
South -0.4 +7.4 +15.9

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