NEW YORK (CNN/Money) - Sales of existing homes in the United States jumped in December, ending a two-month decline, a realty group said Monday in a report that was stronger than Wall Street forecasts.
The National Association of Realtors said existing home sales rose 6.9 percent to an annual rate of 6.47 million units from a revised rate of 6.05 million units in November. Economists expected sales at a rate of 6.12 million units, according to Briefing.com.
"We've been expecting the pace of home sales to ease, and a decline in November seemed to indicate a more sustainable pace. But the rebound in December – the second highest monthly pace on record – shows there's still a lot of life in this market," NAR chief economist David Lereah said, citing a recent decline in mortgage rates.
For all of 2003, 6.1 million pre-owned homes were sold, a record, compared with 5.56 million in 2002.
U.S. stock prices were mixed in early trading after the report. Treasury bond prices fell.
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The housing market has been one of the strongest sectors of the economy in recent years, helped along by the lowest mortgage rates in a generation.
In turn, the housing market has helped support consumer spending, which makes up more than two-thirds of the total economy. A surge in home prices made homeowners feel wealthier, easing the sting of a three-year bear market in stocks, and a boom in mortgage refinancing cut mortgage borrowers' monthly payments and gave them some extra cash to spend.
Rates began to rise in the second half of 2003, stifling the refi boom and leading many analysts to expect the housing market to slow down in 2004. Sales of new and pre-owned homes did, in fact, slow down in October and November.
Rates stay low
But interest rates have stayed stubbornly low, keeping housing demand high. Last week, the average rate for a 30-year mortgage fell to 5.66 percent, its lowest level since July 11, according to mortgage financing firm Freddie Mac.
In response, demand for mortgages rose last week to its highest level since the Mortgage Bankers Association started keeping track in 1990, the MBA said Wednesday.
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And rates seem likely to stay relatively low for much of the year, with the Federal Reserve promising to keep them subdued. Fed policy makers meet this week to discuss interest rates and are widely expected to leave their key overnight lending rate at a 41-year low.
Housing has been so strong, in fact, that some observers have worried there is a housing-market bubble, akin to the stock market bubble of the late 1990s. The fear is that home prices are artificially high and in danger of a sudden decline, which would hurt homeowners.
But most economists dismiss this worry. Even as they acknowledge some local housing markets may be in bubbles, they also say housing supply seems to be at an appropriate level -- unlike the late 1980s and early 1990s, when builders slapped together houses in a speculative frenzy that resulted in a glut of inventory and sudden price drop.
In its report Monday, the NAR said the national median existing-home price was $173,200 in December, compared with $169,900 in November and $162,400 in December 2002.
One condition of a bubble, overly high housing inventories, is certainly not a problem; the backlog of houses on the market fell to a 4.3-month supply, compared with a 4.9-month supply in November.
Regionally, sales in the Midwest rose 9.4 percent to an annual rate of 1.39 million units in December, while sales in the West rose 7.9 percent to an annual rate of 1.77 million units.
Existing-home sales in the South rose 5.3 percent to an annual rate of 2.58 million units, while sales in the Northeast rose 2.9 percent to a pace of 720,000 units in December.
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