Low mortgage rates keep home sales strong

Associated Press

WASHINGTON — Lured by low mortgage rates, Americans snapped up used homes in May, pushing sales to their second-highest level this year.

Sales of previously occupied homes rose by 2.9 percent last month to a seasonally adjusted annual rate of 5.37 million, after declining by 3.9 percent in April, the National Association of Realtors reported yesterday.

Given that many economists were predicting sales would be flat or down, the better-than-expected performance left analysts marveling at the industry's resilience despite the economic slowdown since the middle of last year.

The main reason the housing market has remained stable during the slowdown is because mortgage rates have stayed low. Though rates crept up between April and May, they are down more than a full percentage point from May of last year.

"The unsinkable housing market continues to prop up the economy," said economist Joel Naroff of Naroff Economic Advisors.

For this year, the 5.37 million rate was second only to the pace of 5.43 million posted in March.

The choppy economy isn't putting off home buyers for a number of reasons, economists said. Mortgage rates remain favorable and Americans — despite mounting layoffs — still have jobs, a key ingredient when deciding whether or not to make a big-ticket purchase, analysts said.

"Demand is still very high, interest rates remain close to historic lows and many people are confident about their own economic future," said David Lereah, the association's chief economist.

The average rate on a 30-year fixed-rate mortgage in May was 7.15 percent, up from 7.08 percent in April, but well below the 8.52 percent posted in May 2000. Mortgage rates hit a five-year high of 8.64 percent in mid-May a year ago. Last week, 30-year mortgage rates dipped to 7.11 percent.