Home Sales Drop But Stay Strong

Sales of previously owned homes dropped 2.6 percent in July as mortgage rates crept up. But even with the decline, sales clocked in at the third-highest level on record.

The latest snapshot of housing activity, released by the National Association of Realtors on Tuesday, suggested that the sizzling housing market may be cooling a bit but nonetheless remains in healthy shape.

The 2.6 percent decline from the previous month pushed sales down in July to a seasonally adjusted annual rate of 7.16 million units.

"This is a big number any way you slice it, and housing is continuing to stimulate the overall economy," said the association's chief economist, David Lereah.

"It's a very, very healthy level of housing activity, but it seems we are coming off our highs of June," Lereah told CBS Radio News.

The decrease came after sales soared in June, hitting a new record pace of 7.35 million units, according to revised figures. June's performance turned out to be even stronger than previously estimated just a month ago.

Despite the drop in sales in July home prices continued to march upward. The median sales price — where half sell for more and half sell for less — of an existing home was $218,000 in July, up a whopping 14.1 percent from a year ago.

Federal Reserve Chairman Alan Greenspan has warned of "speculative fervor" in some local housing markets that may be pushing prices up to unsustainable levels.

But that shouldn't be a problem for the overall economy, James Gillespie of Coldwell Banker Real Estate told CBS Radio News.

"Real estate has really driven our economy the last five years. It has kept the one recession that were in to a very, very short recession, and it continues to fuel the economy," Gillespie said.
The number of homes available for sale rose in July and if that development should continue in the months ahead that could take some pressure off prices, Lereah said.

"It's certainly still a good time to sell, but it's also a good time to buy, because mortgage rates are near historic lows. The supply is still relatively lean, so it's a good time to sell," he said.

By region, sales were down in all parts of the country, except for the South, where they were flat.

In the South, sales were unchanged in July, holding at a record pace of 2.74 million units. For the Midwest, sales dipped by 1.8 percent in July from the previous month to an annual rate of 1.61 million units. Sales in the Northeast fell by 3.3 percent in July to a pace of 1.19 million units. In the West, sales declined by 7.5 percent to a pace of 1.61 million.

The overall drop in sales of previously owned homes comes as mortgage rates rose. The average rate on 30-year mortgages in July was 5.70 percent, up from 5.58 percent in June. Even with the increase, though, mortgage rates are still considered low by historical standards.

To fend off inflation, the Federal Reserve earlier this month boosted short-term interest rates by one-quarter percentage point. It marked the 10th increase of that size since the Fed began to tighten credit in June 2004. Another bump-up is expected at the Fed's next meeting on Sept. 20.

The overall pace of sales, at 7.16 million units, in July was the third highest ever. The second-best showing came in April with a pace of 7.18 million units.

Economists were predicting that home sales would slow in July saying that the red-hot sales pace seen in June just couldn't be sustained. Before the release of the report, analysts were predicting sales were drop to a pace of around 7.25 million.