Housing Prices Reach a Record

Still rising: Median home prices rose to a record $207,000, with no evidence the market will cool soon.
By: MICHAEL SCHROEDER: The Wall Street Journal Online
Existing-home sales fell slightly in May, but median home prices climbed to a new high with no immediate evidence that the housing market will cool soon.

Home resales slipped to a 7.13 million annual rate last month, a 0.7% decline from April's record pace, the National Association of Realtors said. The median home price rose to a record $207,000, up $2,000 from April and 12.5% above the price in May 2004. Meanwhile, the inventory of homes on the market rose to a 4.3-month supply, up slightly from April's revised 4.1 months, the association said.

Housing prices will continue to climb, at least through 2006, according to a survey by the American Bankers Association's Economic Advisory Committee. The committee cautioned, however, that there is a growing risk of a correction in some overvalued local housing markets.

"Conditions will inevitably cool, but it is hard to see what changes will bring that about," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. "Until either the economy plunges or long-term rates more closely reflect robust economic fundamentals, we can expect the housing market to remain on the boil."

While low mortgage rates continue to drive the housing market, some economists believe the threat of rising mortgage rates has also motivated some potential home buyers to accelerate their purchase decisions. The average 30-year rate dropped to 5.72% last month from 5.86% in April, according to Freddie Mac.

Separately, initial claims for unemployment benefits in the U.S. fell by 20,000 to a seasonally adjusted 314,000 last week, the lowest point in two months, the Labor Department said. The four-week average declined to 333,000 from 335,500.

The department said the number of workers drawing unemployment benefits for more than a week fell in the week that ended June 11, the latest period for which data are available. Those continuing claims declined by 38,000 to 2.6 million. The jobless rate for workers with unemployment insurance decreased to 2%.