Existing homes selling fast - record fast

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NEW YORK (CNNMoney.com) -- Sales of existing homes rose in July for the fourth consecutive month, lending support to economists who argue a recovery is near.

Sales of previously owned single-family homes were up 7.2% compared with June and 5% from July 2008, The National Association of Realtors (NAR) reported Friday. The monthly gain was the largest on record for existing-home sales, which NAR has tracked since 1999.

"The housing market has decisively turned for the better," said Lawrence Yun, NAR's chief economist. "A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales."

July home sales hit an annualized rate of 5.24 million proprieties, marking the first breach of the 5 million annualized rate mark since last September, when they hit 5.1 million. Since then, they have stayed in a very narrow range, bouncing between between January's low of 4.49 million and October's high of 4.94 million.

The July performance far exceeded expectations: A consensus of real estate experts had forecast sales of 5 million.

Of course, homes should be selling. Prices have fallen more than 32% from their peaks, set in the summer of 2006. Plus, mortgage rates near historic lows makes the cost of purchasing a home lower than they've been in nearly 20 years.

"In some recovering markets like San Diego, Las Vegas, Phoenix and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint," Yun said.

Overall though, the national inventory rose by more than 7% to 4.09 million units. That will continue to keep prices low, according to Mike Larson, a housing analyst with Weiss Research.

"There's a bifurcation of the market," he said. "There's excess supply putting downward pressure on prices and people respond to the lower prices by buying homes."

Housing is its most affordable in many years, he pointed out. "Falling prices is not part of the problem, they're part of the solution," he said.

Hurting home sales have been stubborn increases in job losses. More than 6.7 million jobs have been lost since the beginning of 2008.

That's one reason why Robert Dye, a senior economist for PNC Financial Services (PNC, Fortune 500), is keeping his optimism in check.

"I wouldn't go overboard on this number," he said. "The economy is still healing and will continue to run into some bumps. But it does bode very well for the future and shows buyer confidence is increasing."

There is one potential bump, however: The looming end of the first-time homebuyers credit. The credit gave first-time homebuyers an up to $8,000 refund on their taxes if they close on a deal before Dec. 1. That credit has been motivating buyers, and when it expires, demand could dry up.

"Just like with the cash-for-clunkers program, we run the risk of a letdown as the program runs its course," Dye said.

Regionally, the strongest market was the Northeast, where sales soared by 13.4% to an annualized rate of 930,000. That was 3.3% higher than last July. The median price of homes sold during the month was $236,700, off 15% from last year.

Midwest sales rose 10.9% to a 1.22 million rate, 8% higher year-over-year. Prices there have sunk 5.9% over the past 12 months to a median of $157,200.

In the South, sales were up 7.1% from June and 5.4% from last July to a rate of 1.95 million. Price have dropped 7.1% to $164,500 over the past 12 months.

The only region reporting a slip in sales was the West, where they fell 1.7% to a rate of 1.13 million. That was ahead of last July, however, by 1.8%. The median price there was $202,300, a whopping 28% below what is was a year ago.