Washington – Prices and sales of previously owned homes hit records last month, according to a report out Tuesday that heightened concerns that the housing market was becoming dangerously overheated.
The median price of a home sold in the United States was $206,000 in April, up 6.7 percent from the prior month and 15.1 percent from April 2004, the National Association of Realtors said. It was the first time the median price was above $200,000 and was the biggest year-over-year price gain in nearly 25 years.
The median is the point at which half of the homes sold above and half sold below.
That represented the biggest 12-month gain in prices since November 1980 and added to concerns that the housing industry could be experiencing a speculative bubble similar to the stock market bubble that popped in spring 2000.
The jump in home 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 June have done nothing to cool off demand for housing.
However, some of those concerns were eased later in the day with release of the minutes of the Fed’s last interest-rate- setting discussion on May 3. Those minutes showed that while Fed officials were worried about what high oil prices might do in terms of sparking broader inflation pressures, in the end they decided there was no need to raise rates more aggressively.
Sales of previously owned homes, meanwhile, rose 4.5 percent from March on a seasonally adjusted annual basis to 7.2 million, also a record. Sales were up 5.7 percent from a year ago in April.
Activity was the strongest in the South but also was up in the Midwest and Northeast. Sales were flat in the West.
The report confirms the housing market is on track for another record year, once again defying expectations of a slowdown, Action Economics chief economist Mike Englund said.
It also suggests buyers are ignoring talk that the housing market is overheating and potentially forming a dangerous bubble in some parts of the U.S., one that could suddenly burst.
“This discussion of a bubble really doesn’t seem to be influencing decisions,” Englund said.
The data came just a few days after Federal Reserve Chairman Alan Greenspan said he saw “froth” in some local housing markets but discounted the notion that there was a nationwide housing bubble forming, according to Bloomberg News.
Greenspan predicted Friday that the large increases in home prices would soon ease. He said that although some markets could see actual price declines, most homeowners who bought before the recent run-up in prices will still likely find their houses worth more than what they paid.
Tom Kunz, president of real estate giant Century 21, said home sales will remain strong through most of this year because he did not expect mortgage rates to climb rapidly.
Rates have actually been falling in recent weeks, with a 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.
The housing markets have been held up in large part by continued rock-bottom mortgage rates, which have stayed low despite a nearly year-long effort at the Fed to raise its target for short-term interest rates.
Mortgage rates typically increase as Fed officials raise interest rates.
But a number of factors, including long-term expectations for low inflation, are holding down long-term bond yields, which have a greater impact on mortgage rates.
Also continuing to propel housing have been gains in job creation in recent months.
“We see all the positive factors coming together to coincide with a powerful demographic demand for housing,” National Association of Realtors chief economist David Lereah said in a statement.
Celia Chen, director of housing economics at Economy.com, predicts mortgage rates will rise this year, leading to a slowdown in home activity.
But “with mortgage interest coming down again in the last few weeks, however, sales over the next couple of months may yet remain strong,” she said in a statement.
The Associated Press contributed to this report.
