New Home Sales Hit 5-Year High

The rate of new home sales continues to boom, though it's still a far cry from the pre-bubble era.

In areas dominated by cash buyers, homebuyers who plan to get a mortgage need to go the extra mile
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Sales of new single-family homes were at an annual rate of 497,000, the Census Bureau reported Wednesday, the indicator's best performance since May 2008.

The data indicate that the housing recovery continues to grow unabated. New home sales were 8.3 percent above the May rate of 459,000 and 38.1 percent above the 360,000 rate seen in June 2012.

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In addition, prices on new homes have risen over time. The median price for a new house was $264,400 in the second quarter, up from $258,400 in the first quarter and up nearly $30,000 from the second quarter of 2012, when the median price was at $238,700.

The figures also show that homes have continued to sell well, despite rising mortgage rates. Interest rates on 30-year, fixed-rate mortgages were at a record low at the end of 2012, at an average of 3.35 percent, according to Freddie Mac. That rate rose dramatically recently, in part upon investor fears that the Federal Reserve will soon taper its quantitative easing stimulus program, which has helped to drive interest rates downward. As of Freddie Mac's latest Primary Mortgage Market Survey, the average rate on a 30-year fixed-rate mortgage is now nearly 4.4 percent.

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Ironically, rising mortgage rates may be driving new home sales, says one economist.

"The jump in new home sales is great news but whether it was due to growing demand or fears of even higher mortgage rates is not clear," writes Joel Naroff, president and chief economist at Naroff Economic Advisors, in a commentary on this morning's numbers. Buyers may be flocking to homes right now in the hopes of avoiding future, higher mortgage rates. He adds, however, that it could be some time before indicators show the full effects of rising rates.

"It will take a month or two longer before we see the effects on the existing home market since closings take a long time," he says.

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Still, housing numbers aren't on a uniformly upward trajectory. Data released July 17 showed June housing starts had slowed last month by nearly 10 percent from May.

Home sales have climbed steadily in recent months. (Federal Reserve Bank of St. Louis)

While new home sales may be booming now compared to where they were mid-recession, there is plenty of room for growth. The rate of new home sales is still far below where it was before the crash, or even before the frenzied homebuying that took place in the mid-2000s.

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