WASHINGTON -- The nation's housing market, which cushioned the recession and is helping sustain the economic recovery, showed continued strength last month despite growing worries among some economists that home prices could be a bubble waiting to burst like the stock market.
New home sales reached a record annual rate in June of just more than 1 million units, the Commerce Department reported Thursday. The combination of hefty demand and falling mortgage rates, which hit 30-year lows this week, has continued to push up the value of many homes, offsetting part of the household wealth lost in the stock market plunge.
Many homeowners are refinancing their mortgages to lower their payments or to tap that added equity to pay off other debt or support additional consumer spending, a key ingredient in this year's recovery.
Meanwhile, low rates are also encouraging many investors to buy homes as rental property, an investment they think may be a better bet than stocks.
"Stocks I'm leaving alone," said Ray Porter, of Leesburg, Va., who is negotiating to buy a condo in Reston, Va., that would be his third real-estate acquisition in two years. "Real estate, in my opinion, is the safest bet now -- with the exception of holding cash, and that only yields 2 to 4 percent; that only keeps up with inflation."
Some analysts believe the large run-up in home values in many parts of the country -- particularly areas where prices have risen faster than incomes like Washington, New York, Boston and Southern California -- reflect a real estate bubble doomed to burst. They argue that the big stock gains of recent years helped propel housing prices upward in certain areas, and those price levels can't be sustained in a falling stock market.
And some worry further that without as much stock or housing wealth to draw from, consumers will cut back their spending, undermining the economic recovery.
However, with personal incomes continuing to rise, the population growing and everyone needing shelter, Federal Reserve Chairman Alan Greenspan and others discount worries of a housing bubble and the likelihood of a significant, widespread drop in home prices that would hurt the economy.
Sales of existing homes unexpectedly fell last month to an annual rate of 5.07 million units, down from 5.74 million in May, the National Association of Realtors said Thursday, but analysts said mortgage applications suggest that figure is likely to rebound in July.
Meanwhile the huge drop in stock prices is partly responsible for the decline in mortgage rates. Many investors have been pulling money out of stocks and buying bonds, which has pushed down yields on bonds to which mortgage rates are indirectly linked.
Rates on 30-year fixed-rate mortgages dropped to a nationwide average of 6.34 percent, the lowest level since 1971 when Freddie Mac began tracking rates, the mortgage agency said Thursday. The average 15-year rate dipped to 5.76 percent.
Throughout last year's economic slump, mortgage rates of around 7 percent kept housing strong and their decline since has kept the market booming in many parts of the country.
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