NEW YORK (CNN/Money) - Home sales slowed in December from the pace in November, but the sales of existing homes still set a new full-year mark in 2004, according to a report issued Tuesday.
The National Association of Realtors reported that existing single-family homes sold at a seasonally adjusted annual pace of 6.69 million homes in December. That's below the consensus forecast of a sales pace of 6.80 million from economists surveyed by Briefing.com, and down from the revised 6.92 million sales rate in November, itself a record pace for a month.
Still, the trade group's reported that actual sales for the full year came in at nearly 6.68 million, up from the previous record of 6.1 million homes sold in 2003. And the group said it sees strong sales ahead in 2005.
"There is no sign of a downturn," said a statement from David Lereah, NAR's chief economist. "Home sales will continue at historically high levels, and 2005 is expected to be the second-best year on record for the housing market."
Lereah said the decline in December was not unexpected.
"Our sense was that November sales were the peak for the current housing cycle, but activity remains strong," he said.
Is housing market topped out?
The NAR figures show that 2004 was the eighth year in the last nine with record sales of existing homes. The 1996 sales of 4.2 million existing single family homes broke a record that had stood almost 20 years. But the steady gains since then have raised existing home sales volumes more than 60 percent, and a key measure of home prices by almost as much.
"We've never had a streak like this," said NAR spokesman Walter Molony. "We think we've come to an end for setting a record each year, but we're projecting this is a new plateau because of population growth and household formation."
He said that in addition to immigration driving home purchases, the age group in their early 20s to 30s, the prime time to buy a first home, is almost as large as the traditional Baby Boomers born between 1945 and 1960.
There are other independent economists who agree that the housing market is in good position heading into 2005.
"Strong continued gross domestic product growth and solid employment gains should fuel further home sales and may mitigate some of the slowing engendered by higher interest rates," said Jason Schenker, economist with Wachovia Securities.
But there are other economists who argue that housing market is a so-called bubble. They warn the low mortgage interest rates and a false expectation of continued rising prices has driven home values and supplies to unsustainable levels. One of the most prominent advocates of the bubble theory is Dean Baker, co-director of the Center for Economic Policy Research.
"This will hugely depend on interest rates," he said. "I'd be surprised if interest rates stay this low, but I said the same thing two years ago and I was wrong. But it wouldn't surprise me to see mortgage rates flirting with 7 percent or over 7 percent by end of the year, and even that rise in interest rates could put the market in considerable jeopardy."
The Freddie Mac survey of 30-year fixed-rate interest rates came in at 5.75 percent in December, which while it's up from the 5.73 percent rate in November, is down from both the average 5.88 percent in December 2003 as well as the 5.84 percent for 2004 as a whole. Interest rates fell to an average 5.67 percent in the mortgage finance firm's most recent weekly survey.
Tight supply of homes for sales also has helped support housing prices. The NAR's report found 2.2 million homes available for sale, or about a 3.9 month supply based on current sales pace. That's the lowest inventory based on months supply seen in 2004.
Together the low rates and the tight supply have led the median price for a home rose to $188,900 in December, up 8 percent from a year earlier. The median price reflects the point at which half the homes sell for more and half sell for less. The average sales price also rose 8 percent over the last year to $242,800, up just less than 1 percent from November's average.
Advocates of continued strength in the housing market say that it is rare for median and average home prices to post a nationwide decline for even a quarter, and they have never fallen over the course of a full year since figures started being tracked after World War II.
Baker said that even if the market price for existing homes does show a sharp, it could keep the pace of home sales strong, as some panic selling could occur, particularly for second homes. He said he would not be surprised to see nationwide home prices fall 10 to 15 percent if mortgage rates rise to or above 7 percent, while in some particularly overvalued markets, the fall in prices could be 25 to 30 percent.