New U.S. Home Sales Leap to Record High

[adios]

The prospect of the demise of the real estate market may be greatly exaggerated. Oops. Anyway as stated many times, the real estate market isn't ubiquitious. Sure prices are high in areas where demand is high but prices differ widely depending on the local market. Decent treasury rally today as well.

New U.S. Home Sales Leap to Record High (http://biz.yahoo.com/rb/040624/economy_homes_1.html)

New U.S. Home Sales Leap to Record High
Thursday June 24, 10:03 am ET


WASHINGTON (Reuters) - Sales of new U.S. homes surged well past expectations in May to a record high, as generally rising mortgage interest rates did little to restrain home buying, a government report showed on Thursday.

Sales of new homes jumped 14.8 percent to a seasonally adjusted annual rate of 1.369 million units from an upwardly revised 1.192 million in April, the Commerce Department said. It was the biggest monthly climb since April 1993.

Analysts polled by Reuters were expecting sales to rise more modestly to 1.12 million units from the originally reported 1.093 million pace on the strength of mortgage applications.

Sales of new homes reached a record high 663,000 annual rate in the South, the region with the greatest volume of activity. They rose to a 121,000 rate in the Northeast, the highest level since January 1989.

Inventories fell to a record low 3.3 months' supply of new homes available for sale at the current sales pace.

Applications for loans to buy homes rose slightly last week, the Mortgage Bankers Association reported on Wednesday. While applications for refinancing slipped, bids to buy new homes rose, a trend economists said reflects demand for homes despite a pattern of rising interest rates for mortgage loans.

U.S. housing starts fell 0.7 percent in May, less than expected, and permits rose to a 30-year high. Economists said gradual increases in mortgage rates were doing less than expected to hold back demand for homes.

U.S. 30-year fixed rate mortgages rose slightly last week to 6.32 percent, mortgage finance giant Freddie Mac said.

[Ray Zee]

eventially rising rates will take a toll on home prices. how much and when is another question. as interest rates rise with inflation hard assets rise as well. so it is all related. so picking out one class as gojng down is tough. in general rising rates make houses harder to sell for a short period then prices catch up as the supply goes down.

in my area prices are going thru the roof. i just got an unsolisited offer on a rental house i bought ten years ago for 15 times what i paid. crazy.

[adios]

I saw some ads from developers for home sites in Montana that seemed high. You bought long ago so you must be a happy camper but I suppose the resulting in encroachment by more people is the downside. Plenty of land though.

[GeorgeF]

"eventially rising rates will take a toll on home prices"

My worry is that low rates will encourage developers to add supply until prices collapse. Personally I think that unless the fed gets short term rates into the 4% range there is going to be a disaster in real estate.

I also see local government workers getting wages and pensions based on taxes collected from property taxes. If real estate values collapse where are they going to get the tax income from?

[Ray Zee]

your right too low of rates is way bad. but i dont think with the time lag you can oversupply to such an extent to have a collapse. that would come from the economy side of the equation not supply. supply could indeed make the market very soft for awhile and send prices maybe 20% down. more possibly in isolated markets. building would slow down and prices would come back. happens all the time in the housing market. its the economy that can crush it but then that gets it all also.
as far as property taxes they are very downward inflexible. it takes a long time to get an area reassessed to a lower base. then the commissoners just raise the mill levy to make up for it.
i do see where we my get an oversupply of multifamily type housing soon. i wouldnt want to be in that end of the market. and i never have for too long a period. in nice growing areas single family cute houses will always be in more demand than supply. as you have increased population to bib prices up and costs of new constrution always rising.
that doesnt apply in areas where the land is all the same and new houses are just like the existing ones.

[GeorgeF]

"your right too low of rates is way bad."
Sounds like you're an Austrian; www.mises.org (http://www.mises.org)

The real estate collapse is first too low rates stimulate building in areas where local industries are most able to profit from too low rates. Those areas eventualy become overbuilt and possibly way overbuilt.

At some point rates have to go up. Once they do areas of the country that can do better in that environment start to pick up. People start loosing their jobs in the overbuilt area and start moving to where the work/cost of living is less. That's when you start seeing boarded up buildings in a once thriving area. You may see real estate pick up somewhere else. I am not saying that will happen anywhere near you in the near future, but in my estimation most every building built will be abandoned at some point in it's lifetime or will be torn down.

To get a real drop in real estate you need to have people migrating from one place to another. If you have cash in the bank and know where they are going or when they will come back you can get really rich.

"property taxes they are very downward inflexible"

Your right the local gov does not like to reduce rates. What happens is properties are abandoned.