Sales of New Homes Still Strong in May

Sales of new homes in May climbed to the second-highest level ever, according to a Commerce Department report Friday -- providing further evidence that low mortgage rates are still fueling a booming housing market.

The median price of the homes sold did fall sharply, however. Analysts blamed a change in the regional makeup of sales last month for the decline and said it was not a sign that a potential speculative bubble in some markets was in danger of bursting.

They predicted that sales of both new and existing homes would remain strong through the summer, with home prices continuing to post double-digit increases compared with a year ago. However, they said sales and prices probably would start to taper off in the fall if mortgage rates finally began to rise, something that has not occurred this year.

“The big key ... will be what happens to long-term interest rates,” said David Seiders, chief economist at the National Assn. of Home Builders. “I think we will see some modest fade in the numbers for both new and existing homes by the end of the year.”

Friday’s report said sales of new single-family homes rose by 2.1% last month to a seasonally adjusted annual rate of 1.3 million homes, second only to a 1.31-million sales pace set in October.

The median, or midpoint, price for sales last month fell by 6.5% to $217,000.

Analysts attributed the decline to a big drop in sales in the Northeast, where homes are more expensive, and a big rise in sales in the Midwest, where homes are cheaper. The median new-home price set an all-time high of $237,300 in February.

The strong new-home sales results followed a report Thursday that sales of previously owned homes in May amounted to an annual rate of 7.13 million units, a slight decline from the record April pace but still the second-fastest sales rate on record for existing homes. The median sales price of existing homes continued rising in May to hit a record of $207,000.

The housing market has been red-hot this year, with demand being driven by mortgage rates that have hovered near historic lows. This surge in demand has raised concerns that a speculative fever is creating a housing bubble similar to the stock market bubble that burst in early 2000.

The increase in sales of new homes was led by a 22.9% jump in sales in the Midwest and an increase of 1.7% in the West. However, sales fell 24.5% in the Northeast and were down 0.8% in the South.

In other economic news, orders for durable goods rose by 5.5% last month, the biggest increase in 14 months. Economists cautioned that the increase overstated the strength in manufacturing because it was inflated by a huge jump in demand for commercial aircraft.

Excluding the volatile transportation sector, new orders for durable goods fell by 0.2% last month, marking the third decline in the last four months for orders outside of transportation.

Demand for non-defense capital goods was even weaker, falling by 2.3%, the biggest drop since October.

Economists worry that manufacturing, the hardest-hit sector in the 2001 recession, could be showing signs of faltering again as businesses grow more cautious in the face of a renewed surge in oil prices.