Previously owned home sales slip

WASHINGTON -- Soaring house prices may be making some people think twice about buying a slice of the American Dream. But plenty are still willing to take the plunge. Sales of previously owned homes fell in July as the price of a house climbed to a record high. Still, the pace of sales was the third best showing on record, suggesting the red-hot market isn't losing much of its sizzle.

The latest snapshot of activity in the housing market, released Tuesday by the National Association of Realtors, showed that July sales of existing homes -- including single-family houses, town homes and condominiums -- totaled 7.16 million units at a seasonally adjusted annual rate.

That represented a 2.6 percent decline from June's record-high pace of 7.35 million units.

Lofty home prices and, to a lesser extent, rising mortgage rates played a role in July's drop in sales -- making it harder for some house hunters to take the leap into home ownership, analysts said.

"Some people are being turned off by the high house prices and they just can't pull the trigger," said Joel Naroff, president of Naroff Economic Advisors. "Without question that's causing some people to think twice about buying."

The median sales price of an existing home in July climbed to a record $218,000, up a sizable 14.1 percent from a year ago. The median price is the point at which half of homes sell for more and half sell for less.

Looking at individual regions, the median house price in July compared with a year ago went up the fastest in the West, by 16 percent. That was followed by a 13.1 percent jump in the Northeast, a 11.9 percent rise in the Midwest and a 7.5 percent pickup in the South.

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

The Fed chief also has warned people about stretching to buy expensive homes using risky interest-only mortgages and other exotic home loans that are increasing in popularity.

If interest rates jump, some borrowers could have trouble making their mortgage payments.

In addition, a significant drop in the price of a house could leave some home owners with a mortgage that costs more than they could receive by selling their residence. That would leave them owing their mortgage lender money.

The housing report weighed on some Wall Street investors. The Dow Jones industrials lost 50.31 points to close at 10,519.58.

On the sales front, even with the decline in July, the pace of sales still indicated that housing activity was healthy, analysts said.

"I believe that the housing market has moved from a boil to a simmer," said Richard Yamarone, economist at Argus Research. Some economists predict home sales -- which have clocked record highs four years in a row -- will set another record in 2005.

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 the blistering pace of June just couldn't be sustained. Before release of the report, analysts were forecasting sales to drop to a pace of around 7.25 million.

By region, sales were down in all parts of the country, except for the South, where they were flat, holding at a record pace of 2.74 million units.

For the Midwest, sales dipped by 1.8 percent in July to an annual rate of 1.61 million units. Sales in the Northeast fell by 3.3 percent to a pace of 1.19 million units. In the West, sales declined by 7.5 percent to a pace of 1.61 million.

"This time of year you start to see some slowing. Kids get ready to go back to school. People are on vacation," said Tom Kunz, president of Century 21 Real Estate Corp. With the economy growing solidly, the job market improving and mortgage rates hanging below 6 percent, "all indicators are still good," he said.

The average rate on 30-year mortgages in July was 5.70 percent, up from 5.58 percent in June. By historical standards, though, mortgage rates are still considered low.

Mortgage rates have stayed well behaved despite the Federal Reserve's 14-month-long campaign to raise interest rates. The Fed is expected to boost short-term rates again at its next meeting on Sept. 20.

The number of homes available for sale rose in July, and if that development continues it could take some pressure off prices, said David Lereah, chief economist at the National Association of Realtors. Tight supplies have been a factor in pushing prices higher.

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On the Net:

National Association of Realtors: http://www.realtor.org/