No sign of cooling in red-hot housing market

Martin Wolk • Profile • E-mail

If you were looking for signs that the red-hot housing market is beginning to cool, you would have been hard-pressed to find them in the latest batch of economic data.

Sales of new and existing homes, already at record levels, rose again in June. Adding together the two categories, single-family home sales have gone from a rate of about 6.5 million in mid-2002 to about 8 million last year to 8.7 million as of last month.

Residential construction also has been on a tear. Housing starts have been steady at a rate of more than 2 million a year for the past three months, which is considered strong although a bit below the rate of January and February, which was boosted by hurricane-related rebuilding in the South. Investment in housing rose at a 10 percent rate last quarter and was an important contributor to the economy's 3.4 percent growth rate.

The latest pricing data also offered more evidence for what one industry analyst called a “frenzy” in sales. The national median price for existing homes jumped to a record $219,000, up 15 percent from a year ago, the fastest rate of growth in 25 years, according to the National Association of Realtors, a trade group. That pushed the Realtors’ affordability index, which compares incomes with home prices, to its lowest level in 14 years.

Meanwhile the median price for a new home fell to $215,000 — about the same as a year ago but down from a peak of $237,000 in February. The new-home figures can be volatile from month to month because they reflect different regions types of housing developments that become available for sale.

“I think what is happening is that everyone is scanning the data extra carefully to see if they can pick up any signs that the market is cooling and on their face the data don’t show that,” said Mark Obrinsky, chief economist for the National Multi Housing Council. 

Joel Naroff of Naroff Economic Advisers agreed, saying the market is getting “out of hand.” Cocktail-party and office chatter he hears nowadays is reminiscent of the tech-stock boom of the 1990s, except that now would-be investors are looking to make a killing by flipping unbuilt condo units.

“When you see everyone starting to get into these deals, it’s getting beyond crazy,” he said. “People are saying, I’ve got to buy now, because if I don’t I’m never going to get into the market.”

One possible crack in the market cited by some analysts this week was that the number of single-family homes authorized but not yet started has risen sharply over the past year to a record 177,000, compared with 143,000 a year ago.

“That suggests to me that there is a speculative element developing with home builders, and that usually is the beginning of the end,” said Paul Kasriel, research director at Northern Trust in Chicago.

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