Housing maintains high levels in June

But leading economist warns of downturn

By Don Hogsett -- Home Textiles Today, 8/6/2001 12:00:00 AM

WASHINGTON —

With mortgage rates still low — and consumers buying houses rather than filling them with sheets, towels and furniture — the broad U.S. housing market remained at near-record levels during June despite a persistently soft economy and waves of job layoffs.

Existing home sales, by far the largest segment of the nation's housing market, dipped slightly, by 0.6 percent, to a seasonally adjusted level of 5.33 million from 5.36 million in May, the National Association of Realtors reported. But even with the modest easing, sales of existing homes remained 2.9 percent above the 5.18 million unit pace of June 2000. And in more positive news, new home sales and housing starts both posted sturdy gains.

New home sales advanced by 1.7 percent, to a seasonally adjusted 922,000 from 907,000 in May, according to the U.S. Census Bureau. And pointing to a continuing strong market going forward, housing starts climbed higher by 3.0 percent, to 1.66 million units from 1.61 million in May, the Census Bureau reported.

But all this activity in home buying could soon start to wane, thinks David Lereah, chief economist of the National Association of Realtors. "The current volume of existing-home sales matches the fifth-highest month on record, and sales activity has been fluctuating at exceptionally high levels for most of this year."

Lereah added, "With mortgage interest rates projected to rise slightly to around 7.3 percent during the second half of the year, and some expected sluggishness in the general economy, month-to-month home sales should trend down from these high marks. However, we expect a total of 5.15 million existing-home sales in 2001, making this year the second highest on record."

NAR president Richard Mendenhall said inventory levels improved in June. "In many areas there have been shortages of homes available for sale, but raw inventories rose 9.1 percent last month with 1.68 million homes on the market. This is helping to bring buyers and sellers into a closer balance, but the market is still tilted in favor of sellers in many areas."

The national median existing-home price was $152,600 in June, up from 8.8 percent from June 2000 when the median price was $140,200. "The higher home price in June partially reflects the trade-up buyers' preference for larger homes."

Sales of new homes remained strong in June, rising by 3.0 percent, and now stand 16.3 percent above year-ago levels. The year-over-year increase was the biggest since December of 1998. The Commerce Department reported a 3.9 month supply of new homes for sale during June, the seventh straight month when the supply has fallen beneath four months.

Bruce Smith, president of the National Association of Home Builders (NAHB), credited mortgage rates. "Interest rates are low — in the seven percent range for fixed-rate financing and close to five percent for adjustable rate mortgages — and home prices have been increasing substantially, generating equity for home owners. The unsettled conditions in the stock market have further strengthened the demand for housing."

Further fueling demand, said Smith, is strong household growth. Smith said his home builders, along with realtors, are forecasting a turndown moving into the third and fourth quarters, before the market picks up again in 2002.

Housing by region
Month-to-month percent change