U.S. Nov. Previously Owned Home Sales Rise to Record

Dec. 29 (Bloomberg) -- U.S. sales of previously owned homes rose 2.7 percent to a record in November, making 2004 the best year ever for housing.

Existing homes sold at a 6.94 million annual rate, up from a 6.76 million pace in October, the National Association of Realtors said in Washington today. A record 6.14 million existing homes have been sold this year, surpassing the 6.1 million in 2003.

"The real estate market just went from red hot to white hot," said James Gillespie, president and chief executive officer of Parsippany, New Jersey-based Coldwell Banker Real Estate, in an interview. Coldwell is a unit of Cendant Corp.

The creation of more than 2 million jobs in the last year, income growth and 30-year mortgage rates below 6 percent have bolstered housing and the economy as homeowners spend more on furnishings and appliances.

The median selling price of an existing home was $188,200 last month, up 1.5 percent from $185,400 in October, today's statistics showed. The median price is up 10.4 percent from the year-earlier month, the biggest 12-month jump since July 1987. Sales rose in the West, South and Midwest and fell in the Northeast. The inventory of houses for sale held at 4.3 months.

"The combination of payroll growth and wage growth, vigilant monetary policy and favorable demographics could produce the second-best housing sales ever in 2005," said John Herrmann, chief U.S. economist at Cantor Fitzgerald LP in New York. "We think it may come very close to this year's record pace."

Forecast

Economists forecast a 6.75 million annual rate of previously owned home sales in November, the same as the previously reported pace for October, according to the median of 46 economists surveyed by Bloomberg News.

Existing homes account for 85 percent of the residential real- estate market in the U.S. The National Association of Realtors expects 6.38 million previously owned homes to be sold in 2005, the second-best on record.

The statistics run counter to other housing market reports this month. New home sales dropped 12 percent in November to an annual pace of 1.125 million, the Commerce Department said Dec. 23. The pace was the second slowest of the year. Housing starts fell to 1.771 million from 2.039 million in October, the biggest drop since January 1994, the department said Dec. 16.

The drop in new home sales was "an anomaly," said David Lereah, the Realtor association's chief economist. "The housing markets are very healthy." He said new home sales are erratic and the figures often get revised, so it's best to look at an average over three or four months to get a more accurate picture.

Possible Peak

Sales of previously owned homes are based on contract closings and tend to lag statistics based on signings, such as new home sales. Economists Ted Wieseman at Morgan Stanley, John Shin at Lehman Brothers Inc. and Jayanth Nazareth at JPMorgan Chase Bank in New York said the slowdown in new home sales suggests existing home sales may slow in reports for the next couple of months.

"I do think we have peaked," Lereah said. "We should start to see some modest drops in existing home sales as mortgage rates modestly rise." He expects that the 30-year fixed mortgage rate will average 6.4 percent to 6.5 percent next year.

A report earlier today showed applications to buy homes rose 2.7 percent last week. The Mortgage Bankers Association's index increased to 483.8, close to the record 501.6 reached in January.

Mortgage Rates

Borrowing costs remain at a level that's supporting sales, even after five straight increases since June in the Federal Reserve's benchmark overnight bank lending rate. Mortgage rates typically are tied to longer term rates. The benchmark 10-year Treasury note's yield was unchanged at 4.29 percent at 11:32 a.m. in New York, down from 4.58 percent at the start of the Fed's tightening cycle.

The average rate on a 30-year fixed-rate mortgage was 5.73 percent in November and has been below 6 percent since the end of July. At November's rate, the cost for each $100,000 borrowed is about $582 a month, compared with $550 when the rate was an all- time low 5.21 percent last year.

"Low mortgage rates have driven the housing market to quite a few records the past two or three years," said Tim Rogers, chief economist at Briefing.com in Boston. "I don't really expect home sales to stall until long-term mortgage rates rise another percentage point and that's at least a year off. We may not see higher highs in sales, but we won't experience a big drop either."

Regional Sales

Sales rose 6.5 percent in the West to an annual rate of 1.97 million, 1.8 percent in the South to 2.83 million; and 0.7 percent in the Midwest to 1.39 million. Sales fell 1.3 percent in the Northeast to 740,000.

The U.S. homeownership rate in the third quarter was 69 percent, close to the record 69.2 percent in the prior three months, the latest government figures showed.

"2004 was a record and I think 2005 would be a little better than 2003," said William Emerson, chief executive officer of Quicken Loans Inc. in an interview from Farmington Hills, Michigan. "When you see job creation, people feel stronger about how they want to spend their money. When they do that, it bodes well for housing." Quicken is the largest U.S. online mortgage lender.

Homebuilders remain optimistic. The National Association of Home Builders' measure of builder confidence rose to its highest level of the year in December.

"There's incredible demand in this country bumping up against a very limited supply of homes," Robert Toll, chief executive of Toll Brothers Inc., said yesterday in a phone interview while on vacation in Telluride, Colorado. "This level of home sales is sustainable."

Huntingdon Valley, Pennsylvania-based Toll is the largest U.S. builder of luxury homes.