Housing Market Continues to Cool

June 27, 2006 — -- The two major reports on the housing market were released this week, showing a mixed market.

New-home sales saw an unexpected monthly increase while sales of preowned homes saw a one-month drop in overall sales.

The National Association of Realtors report on existing-home sales shows that May's pace dropped 1.2 percent from April to a seasonally adjusted annual pace of 6.67 million units.

The Census Department's look at new-home sales saw May with a 4.6 percent increase over April, to 1.234 million units.

At the same time, the price of new homes is rising, while mortgage rates on a 30-year mortgage climbed to a four-year high last week, making it a difficult market for buyers.

No. No. No. Calling the latest numbers a crash or a burst bubble might make for great headlines, but those phrases don't come close to describing the reality of the housing market in the United States today.

We're actually seeing an orderly slowing of the market from the low-rate-fueled supernova market of the last few years.

Housing values will still grow in most of the country, just at a slower pace than the double-digit growth we've seen since 2001. Some markets, where speculators have jumped in and gobbled up houses to flip for a quick buck, will see values drop.

"There's now a clear pattern of slower home-sales activity in many higher-cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas, which have experienced job growth," David Lereah, the National Association of Realtors' chief economist, said in a statement.

"Although mortgage interest rates remain historically low, the uptrend in interest rates this year has affected those buyers who are at the margins of affordability."

Freddie Mac said that the average 30-year mortgage rate was at 6.6 percent in May, up from 5.72 percent a year ago.

The median price of a new home was $235,300 during May, up 3 percent from a year ago. For preowned homes, the median price is now $230,000 nationally, up about 6 percent from a year ago.

The nation has enough homes on the market today to cover sales interest for about six months. This is about 30 percent more supply than we had a year ago.