Homes Sales Slip but Prices Hit New Record

Sales of existing U.S. homes declined in May, but house prices climbed to a fresh record in more evidence of what a Realtors’ group Thursday called America’s “red-hot” housing market.

A separate report from the Labor Department showed new claims for jobless benefits fell by a larger-than-expected 20,000 last week to the lowest level in two months, setting the stage for what analysts said would be strong job gains in June.

The buoyant unemployment report was one factor pushing U.S. Treasury debt prices slightly lower, while the dollar largely shrugged off the data.

Job growth was just one of the factors cited by the National Assn. of Realtors for the continued strength in the U.S. housing market, which some experts have warned is showing signs of “froth,” if not an outright bubble.

Sales of previously owned homes slipped 0.7% in May to a seasonally adjusted annual rate of 7.13 million units, just below April’s record 7.18 million units, the Realtors’ group said.

The drop was in line with analyst forecasts for a decline to a 7.15-million unit pace. The figure, which includes single-family homes and condominiums, was the second highest on record.

Home prices continued to soar. The national median home price rose 12.5% to a record $207,000 from the same month a year ago, the report showed.

“This market is red hot,” said David Lereah, chief economist for the Realtors’ group. “Stars are certainly aligned for the housing sector right now. I really don’t see an end to this going forward.”

Lereah did say, however, that he was worried about the lending side of the housing market as the prevalence of interest-only and adjustable-rate mortgages increased, suggesting a degree of speculation in the market.

But Lereah said analysts looking for signs of weakness in the market would continue to be disappointed, with the supply of homes on the market edging up only slightly to 4.3 months’ worth in May.

“We need about a six-month supply of homes on the market to have a rough equilibrium between home buyers and sellers,” he said. “For the foreseeable future, the demand for homes will continue to outstrip supply, but we expect the inventory situation to improve in 2006 and take some of the pressure off home prices.”

Single-family home sales fell 1.1% in May to a 6.21 million unit annual rate from a 6.28 million-unit rate in April. Condo sales climbed 2.2% to a record 922,000-unit rate from a 902,000 unit pace in April. The decline in overall sales came as the average rate on 30-year fixed mortgages edged down to 5.72% in May from 5.86% in April.

Separately, the Labor Department said first-time claims for state unemployment insurance aid fell last week to 314,000 from a slightly revised 334,000 in the previous week.

The drop exceeded Wall Street forecasts for a dip to 330,000 and brought the claims to their lowest level since 299,000 in the week ended April 16.