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Home sales soar to record
Low rates, strong demand, push April rate to 7.2M; median price tops $200,000 for first time.
May 24, 2005: 2:52 PM EDT
By Chris Isidore, CNN/Money senior writer
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NEW YORK (CNN/Money) - Existing home sales jumped to a record last month as persistent low mortgage rates helped keep the real estate market sizzling.

The numbers from the National Association of Realtors (NAR) were immediately seized by both sides in the long-running debate about whether there's a bubble in the nation's housing market, a debate into which Federal Reserve Chairman Alan Greenspan waded last week.

The real estate group said the strong sales are a sign the market is fundamentally strong, and not in a possible bubble. Critics said the continued sharp increases in prices is a sign current levels can not be sustained.

The real estate group said sales of previously owned homes rose to an annual rate of 7.18 million in April from a revised 6.87 million rate in March, a number that topped relatively optimistic forecasts on Wall Street. On average, economists surveyed by Briefing.com had predicted a sales pace of 6.90 million, which would have been the third strongest month on record before Tuesday's report.

The previous record was a 7.02 million pace set in June 2004, the real estate group said.

The strong sales helped keep prices rising.

The median price of an existing home topped $200,000 for the first time, climbing to $206,000 nationwide, up about 7 percent from March and 15 percent from a year earlier. Half of existing homes sold above the median and half below.

The average home price also rose, hitting $255,000, up 3 percent from March and 10 percent from a year earlier.

"A new record is a bit unexpected, but so is the performance of mortgage interest rates which have been lower than forecast," David Lereah, the group's chief economist, said in a statement. "When we look at recent job gains, we see all the positive factors coming together to coincide with a powerful demographic demand for housing."

Mortgage finance firm Freddie Mac put the average 30-year fixed-rate mortgage at 5.86 percent for April, down slightly from March. And the low rates haven't ended, despite steady increases in short-term interest rates by the Federal Reserve. Freddie Mac's weekly survey showed the 30-year loan rate at 5.71 percent last week.

Is there a housing bubble?

There's been talk for some time about a "bubble" in the housing market.

On Friday, Federal Reserve Chairman Alan Greenspan weighed in, saying he didn't believe there was a national bubble, but noting that there are enough local markets experiencing a bubble in home prices to justify saying there is a "froth" in the housing market.

Still, some economists, including those from Freddie Mac and the Mortgage Bankers Association, say that with the 30-year mortgage likely to stay below 7 percent probably through next year, prices and sales should stay strong.

Not surprisingly, the NAR also sees strength in the real estate market going forward.

"We've been facing a significant shortage of homes available for sale," NAR President Al Mansell said in a statement.

"Although housing supplies rose last month, it wasn't enough to take pressure off of prices gains, which are the strongest we've seen in nearly 25 years. The dynamics of the market underscore the value of housing as a solid long-term investment," said Mansell, who is also CEO of Coldwell Banker Residential Brokerage in Salt Lake City.

The existing home sales reading is based on closings, which usually occur a month or two after a contract is signed, so it's more of a lagging indicator. Given the strength of some other numbers in March and February, a strong sales report for April wasn't much of a surprise, according to Dean Baker, co-director of the Center for Economic Policy Research.

Even Baker, a leading "bubble hawk," believes there are signs the real estate market has at least a couple more good months ahead of it.

"Until the psychology starts to shift or interest rates jump up, the market will probably stay strong," said Baker. "So far we haven't seen that. We've had a lot of stories on housing bubbles lately. Maybe that will affect the psychology."

A reading on new home sales for April is due Wednesday. The government number, which is based on contracts as opposed to closings, is viewed as a more current indicator of the market than existing home sales. Economists, on average, forecast that new home sales fell to a 1.3 million annual pace in April from a record 1.4 million rate in March.

For more about what the real estate market means for you, click here.  Top of page

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