New home sales a record in June Fed says most of U.S. has 'moderate to solid' growth From Wire Reports Originally published July 28, 2005
WASHINGTON - Sales of new homes rose to an all-time high in June as the red hot housing market kept sizzling.
The Commerce Department reported yesterday that single-family home sales rose to a record annual pace of 1.37 million units in June, up 4 percent from May.
In other economic developments, orders for big-ticket manufactured goods posted a surprisingly strong 1.4 percent increase in June and the Federal Reserve's "beige book" reported that the economy was steaming ahead in June and early July.
"Growth is going to re-accelerate," said Brian M. Jones, an economist at Citigroup Inc. in New York.
Jones had forecast a 2.2 percent rise in orders for durable goods, big-ticket items such as automobiles, household appliances and aircraft. "The demand side of the economy is really solid."
Most of the Fed's 12 regional districts reported "moderate to solid expansions in manufacturing activity and expectations for future factory activity were generally upbeat." The survey also noted that "activity in a wide variety of manufacturing industries was characterized as strong."
However, the Fed's Boston district reported that retail sales were flat or down from a year ago, and New York said retail sales softened in early July, after solid growth in June.
Fed policymakers next meet Aug. 9 when they are widely expected to boost interest rates for a 10th time since June 2004. The rise in the federal funds rate is aimed at forestalling inflation as the economy expands.
Federal Reserve Chairman Alan Greenspan told Congress last week that he is concerned about the housing market, which he described as being in the grips of "speculative fervor" in parts of the country.
The worry is that a price bubble could burst in the hottest real estate markets, sending home prices plunging and mirroring the stock market slide in early 2000.
Greenspan has expressed concerns that homeowners who used exotic instruments such as interest-only mortgages could see the value of their mortgage outweigh the reduced price of their homes.
Sales of existing homes set a record in June as the housing industry continues to be powered by low mortgage rates. The median price of an existing home hit a record high of $219,000 in June, up 14.7 percent from June 2004, the biggest annual increase in nearly 25 years.
But yesterday's report on new-home sales showed prices declining a second consecutive month in June, with the median price dropping by 5.5 percent to $214,800. That's down 0.4 percent from a year ago. New-home prices had set a record at $232,600 in April.
Housing stayed strong in the Federal Reserve's regional districts of Richmond, Va., Atlanta and San Francisco, but "eased in a few markets that had been especially hot - Washington, D.C., several Florida markets and parts of Southern California," the Fed report said.
Michael Carliner, senior economist at the National Association of Home Builders, said the decline could be an indication that demand is strengthening in the lower end of the market.
Mortgage rates, which had been falling for much of this year, have risen for the past three weeks although they still stand at a historically low level of 5.73 percent for 30-year mortgages, according to a Freddie Mac survey. "I would doubt that we will continue to set new sales records," Carliner said. "But the whole idea that there is a bubble suggests that it can pop and drop all at once. That is not typical of the housing market."
The overall economy grew by 3.8 percent at an annual rate in the first three months of this year, and analysts believe growth in the April-to-June period will be almost as strong, coming in at about 3.5 percent.
The 1.4 percent increase in durable goods in June followed a 6.4 percent surge in orders in May, which reflected a big increase in sales of commercial aircraft. After soaring by 167 percent in May, orders in the volatile aircraft sector fell 24.2 percent in June.
Orders for new cars and auto parts edged down a slight 0.1 percent in June after having risen by 0.6 percent in May.
The Associated Press and Bloomberg News contributed to this article.
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