Stoked by a record sales rate, the median price of a previously owned home hits $206,000.

01:00 AM EDT on Wednesday, May 25, 2005

BY MARTIN CRUTSINGER
Associated Press

WASHINGTON -- Existing houses were sold in April at the fastest pace in history as the nation's red-hot housing market just kept getting hotter. And the median price of a previously owned house topped $200,000 for the first time, capping the biggest increase in a quarter-century.

The National Association of Realtors reported yesterday that existing single-family houses and condominiums were sold at a seasonally adjusted rate of 7.18 million units last month, a gain of 4.5 percent from a revised March sales pace of 6.87 million units.

The strength in sales, which was attributed to further declines in mortgage rates, put new upward pressure on prices. The median cost rose to a record $206,000, up 15.1 percent over a year ago.

That represented the biggest 12-month price rise since November 1980, and it adds to concerns that the housing industry could be experiencing a speculative bubble similar to the stock market bubble that popped in the spring of 2000. The median is the midpoint where half the houses sold for more and half for less.

The jump in house prices raised worries in financial markets that the Federal Reserve might be compelled to boost interest rates at a more aggressive clip, given that the eight quarter-point rate hikes since last June have done nothing to cool off demand for housing.

Last week, Fed Chairman Alan Greenspan acknowledged concerns about "froth" in the housing market. "We don't perceive that there is a national bubble, but it's hard not to see that . . . there are a lot of local bubbles," he said in remarks to the Economic Club of New York.

It was Greenspan's most direct expression of concern about the huge run-up in house prices in recent years, especially in certain parts of the country.

Sales rose in three of the four U.S. regions, led by a 7-percent increase in the South and a 5.8-percent gain in the Midwest. Sales stalled in the West, but condominiums, co-ops and houses were going for more than a half-million dollars in California.

Minutes released yesterday from the May 3 meeting at which Fed policymakers raised rates most recently indicated they were concerned about high energy prices stoking broader inflation but didn't believe they needed to raise short-term interest rates more aggressively.

Tom Kunz, president of real estate giant Century 21, said he believed house sales would remain strong through most of this year because he did not expect mortgage rates to climb at a rapid clip. Rates have actually been falling in recent weeks with the 30-year mortgage dipping to 5.71 percent last week, according to a nationwide survey by Freddie Mac.

"We have a good market and money is still relatively cheap," Kunz said.

David Lereah, chief economist at the Realtors association, said that while he had expected existing house sales to decline slightly from last year, when they set a record for a fourth straight year, it was possible sales could achieve a fifth annual record.

The new report said that the 7.18-million sales rate in April compared with a revised 6.87-million pace in March. The old record was 7.02 million at an annual rate last June.

The April increase included a 4.5-percent rise in sales of single-family houses to a record annual rate of 6.28 million units and a 4.8-percent increase in sales of condominiums, which also set a record at an annual rate of 899,000.

"Consumers are still apparently confident enough about their personal financial situations to undertake the housing investment despite the recent softness of confidence surveys," said Lynn Reaser, chief economist at Banc of America Capital Management in Boston. "Mortgage rates have remained less than 6 percent, which has helped fuel demand, and builders report that sales are strong across most price ranges."

The increases may support the idea that purchases of real estate for investment are rising. In the South, condo and co-op prices rose 28 percent from a year earlier. They rose 23 percent in the Northeast. The biggest gain in prices for single-family houses was 22 percent in the West, to $309,800. In California, the median price surged past a half-million dollars for the first time, to $509,230, from $452,680 a year earlier, the state's Realtors association said.

Thirty-six percent of all house purchases last year were second houses, Lereah said. Twenty-three percent were bought as investments and 13 percent as vacation houses, Lereah said.

With Bloomberg News reports