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Continued housing strength seen
Sales of existing homes rise to third highest level on record in March as prices continue upward.
April 25, 2005: 1:18 PM EDT
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NEW YORK (CNN/Money) - Sales of existing homes grew in March, according to an report from a real estate group, as the measure of the market's strength topped forecasts.

The National Association of Realtors reported that homes sold at an annual pace of 6.89 million, up from a revised 6.82 million pace in February. It was tied May 2004 for the third best sales month on record, trailing only the record hit in June 2004 and the second best reading this past November.

Economists surveyed by had forecast that sales pace to edged up to 6.80 million from a previous February reading of 6.79 million.

Home prices continue to show gains in the latest survey, with the average price rising to $249,000, up from $241,000 in February 11.7 percent from year-earlier levels .

The median sales price, which represents the point at which half the homes sell for more and half sell for less, increased to $195,000 from $189,000 in February. That represented a 11.4 percent rise from year-earlier levels.

Housing prices and sales have remained strong over the last several years, supported by low mortgage interest rates. But those rates have been on the rise.

A mortgage rate survey by home finance firm Freddie Mac found the average 30-year at 5.93 percent in March, up from 5.63 percent in February; the rate was 5.45 percent in March 2004.

The existing home sales reading for March is for sales closed in that month, which normally had their sales agreement signed a month or two in advance, and mortgage rates locked in weeks if not months earlier. So the reading is a somewhat lagging indicator of market strength.

Even the Realtors' forecast for 2005 sees slowing in the market in the months ahead. But its executives say there is still fundamental strength in the market, even in the face of rising rates.

They point to factors such as a tight supply of existing homes for sale. The inventory figure edged down 0.2 percent from February, and was off 3.7 percent from a year earlier. The months' supply of home fell to 4.0 months from 4.1 months the previous month.

There has been growing concerns about the strength of the U.S. economy over the past month, but even that might not be bad news for the housing market, as the more bearish sentiment helped push the yields on the 10-year Treasury notes lower.

The 10-year yield and mortgage rates often move in the same direction and the Freddie Mac weekly survey showed the average 30-year mortgage falling to 5.80 percent last week, its lowest level since early March.

"Concerns about the economy have tipped the 10-year down," said Jason Schenker, economist with Wachovia Securities. "Obviously if rates rise, we should see some slowing, but we don't anticipate any type of collapse by any means."

Still other economists are worried that there is a so-called housing bubble that will lead to a drop in home prices nationwide once mortgage rates do start to climb.

Those concerns are starting to spread to the broader population as well. A survey of 400 affluent Americans by McDonald Financial Group found that 60 percent now believe there is a housing bubble, even if many of those don't think the bubble will burst for a year or more.

The next reading on the real estate market strength comes Tuesday when the government reports new home sales. That report is less of a lagging indicator since the sales data is compiled when the home purchase contract is signed, not when it closes.

A related report last week on new home starts and building permits in March showed a nearly 18 percent decline, the sharpest drop seen in 14 years.

For more on the real estate market and what it means to your investments, click here.  Top of page


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