Commercial PropertyBull Housing Run Continues To Surprise Economists
The financial world is still in shock from the news that existing homes sales reached a new record in June. Like the Energizer Bunny, home sales and prices keep going and going.
While bubbleistas have been predicting a downturn in the housing market, housing sales rose nearly three percent in June.
David Lereah, chief economist of The National Association of Realtors, had predicted a slight amount of air will let out of the national housing market, but he doesn"t believe that a real estate bubble exists. He was as surprised and delighted as anyone to see a new record reached.
"Just when you think sales activity is ready to settle into a more sustainable pace, the housing market continues to surprise," he said. "Job growth and economic improvement also are boosting home sales."
Freddie Mac"s chief economist Frank Northaft agrees with Lereah when he says, "We believe that the housing industry, although poised to ease a bit, will still continue to bustle as the economy continues to expand steadily and long-term rates remain affordable."
But, what about the homebuyers paying those higher prices? The national median existing-home price for all housing types was $219,000 in June, up 14.7 percent from June 2004 when the median price was $191,000. Says the NAR, "This is the strongest increase since November 1980 when annual appreciation was 15.6 percent."
Sales are still red-hot in California where median prices for homes increased 16 percent over a year ago, and sales increased by over three and a half percent, says the California Association of Realtors. Florida posted a 31 percent gain in housing prices over June of last year, and a 108 percent price gain over the last five years, says the Florida Association of Realtors.
That has buyers watching interest rates even more closely. Last month it was something of a sport to see how low interest rates would go, but now the trend has reversed toward higher interest rates again. Buyers deciding between two homes should know that interest rates are creeping upward again, and that now might be advisable to pick a house and lock in interest rates.
For buyers who can"t make a quick decision, there"s no reason to despair. Mortgage interest rates moved higher but are still over 25 basis point below where they were a year ago. Today, a 30-year fixed rate mortgage is about 5.75 percent. Of special interest is the rise of the one-year adjustable mortgage, which is the highest rate in three years at 4.42 percent. This could signal the beginning of the end for adjustable rate mortgages, if they are less attractive than fixed rate mortgages. It"s a risk-reward for homebuyers.
Fixed rates become the better deal for homebuyers if they can qualify for them nearly as easily as adjustable rates. When the spread between fixed and adjustable rates is larger, adjustable rates are more attractive, particularly if the home buyer does not plan to own the home very long, typically under five years.