Washington, DC, April 27--Despite rising oil prices, weak stock markets, tepid jobs data and widespread agreement that interest rates are headed higher, U.S. consumers are buying homes at near-record pace and show no sign of slowing.
With one-quarter of 2005 now past, huge gains in home sales are driving analysts to boost their full-year forecasts. In fact, some economists are now saying 2005 could be as good or even better than the record levels posted in 2004.
"It's certainly not out of the question that the year could turn out to be another record," said David Seiders, chief economist of the National Association of Home Builders.
"This is just astounding," he said.
On Tuesday, the Commerce Department said sales of new U.S. homes soared 12.2 percent in March, striking a record high and squashing Wall Street expectations for a decline. The March tally followed upward revisions to sales data for February and January, as well as December 2004.
It also came a day after the National Association of Realtors said sales of existing U.S. homes rose in March to their third-highest level, even as the median home price soared 11.4 percent, the largest jump in nearly 25 years.
The home sales data shocked the market and on Tuesday sent Treasury debt prices lower.
It also ignited a rally in homebuilder stocks.
The Dow Jones U.S. Home Construction Index jumped 2.02 percent 837.37. Centex Corp. jumped 3.74 percent while Toll Brothers gained 3.04 percent and D.R. Horton rose 2.39 percent.
"I know there are people out there saying there's going to be a balloon popping," said David Lereah, chief economist with the Realtors group. "My view is there'll be air coming out of a balloon rather than a balloon popping because markets are too healthy right now."
Indeed, economists and analysts linked to the housing industry continue to say there is not a national housing bubble. Supply can't keep up with demand and prices remain lofty, but those factors vary by region, they say.
The most expensive areas remain the U.S. West and Northeast where there are too many people looking for houses on too little land, said Amy Crews Cutts, deputy chief economist and housing finance company Freddie Mac.
But in March, the U.S. Midwest and South posted the biggest increases in new home sales. Sales in the South, for example, rose to a 733,000 unit pace, a record high for that region.
Daniel Oppenheim, analyst at Banc of America Securities, said improving buyer demographics -- the aging population along with considerable new household formation by echo boomers -- will continue to support home sales.
The Federal Reserve's campaign of slow interest rate hikes may begin to weigh on demand, but that has not happened yet as long-term mortgage rates remain at historic lows.
Fixed 30-year rates averaged 5.80 percent last week, down from 5.91 percent the previous week and below the 5.94 percent average in the comparable week a year ago.
One analyst said the big increase in new home sales in March could be related to a push by consumers to get their purchases done before rates jump.
Looking ahead, one indicator to mind will be supply, economists said.
Both new and existing home supply was thin in March, standing at about four months' worth.
"Once I start to see inventories increase in a meaningful way in some areas, then I'll start to see where these balloons might be," Lereah said. "Right now I can't find them."
