The Marketplace Report: U.S. House Sale Blues
MADELEINE BRAND, host:
Back now with DAY TO DAY. I'm Madeleine Brand.
The housing market is still hot. That's according to new surveys out this week. That's got some experts sounding the alarm even louder that housing prices in some local markets could be bubbles waiting to burst. Bob Moon joins us now from the "Marketplace" news bureau in New York.
And, Bob, the government reports today that new home sales increased in the last month, and normally that's greeted with a lot of enthusiasm. What's the problem?
BOB MOON ("Marketplace"): Well, in some ways, Madeleine, it depends on your vantage point. The fact that new home sales increased in April to a record pace is a sign that low mortgage rates and job gains keep powering housing, but prices are up, especially for the purchases of more expensive homes. The housing market has ridden a roller coaster in the past few months. This increase in new home sales followed reports just yesterday that showed housing starts and existing home sales rose in April. Housing starts climbed 11 percent while existing home sales rose 4.5 percent.
Well, the National Association of Realtors reported that across the country, the average price for existing homes is now $206,000. That's up 15 percent over the last year, and it's broken the 200,000 level for the first time. Today's figures show more higher-priced homes were sold in April while the number of cheaper houses declined. So that could be bad news.
BRAND: And what's behind the strong housing market overall? Hasn't the Federal Reserve been acting to raise interest rates?
MOON: Well, yes, but it hasn't affected mortgage rates so far, at least not in the long term. The chief economist at the National Association of Realtors, David Lereah, says that there's really the best of both worlds right now for the housing sector, because rates have stayed low, and the job market is gaining momentum, so people are more apt to buy houses.
BRAND: And is there anything to this concern that there are some bubbles around the country about to burst?
MOON: Well, Federal Reserve Chairman Alan Greenspan weighed in on this at a luncheon at the Economic Club of New York just last week. You may remember that he said the dot-com and the tech boom were marked by irrational exuberance. Well, now he says the housing market is showing signs of excesses. He says there are a number of things which he thinks suggests, at a minimum, there is what he calls a little froth in the market. And he also said, `We don't perceive that there's a national bubble, but it's hard not to see that there are a lot of local bubbles.' And some economists say that they think home prices are going to slow down, at least in some markets, and they say that that may not happen until interest rates go up, but it will happen.
Today in the "Marketplace" newsroom, we're looking at what happens if French voters turn down the new European constitution.
BRAND: Bob Moon of public radio's daily business show "Marketplace," and "Marketplace" is produced by American Public Media.
MOON: Thanks, Madeleine.
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