Hot housing market reflects rise in consumer confidence

By John Handley
Chicago Tribune

The mood of Americans has started to improve in the wake of war, and nowhere is their upbeat attitude reflected more clearly than in the housing market.

In the most positive day of economic indicators to roll out since the end of the Iraq war, reports on consumer confidence and sales of both new and existing homes all pointed higher yesterday.

Experts who feared the torrid housing market was cooling because of a sales dip in late winter now credit stronger-than-expected home sales in April to rock-bottom mortgage rates and improved consumer attitudes.

"Consumer confidence rebounded because of the relatively quick war with Iraq," said David Lereah, chief economist for the National Association of Realtors.

The Conference Board said its widely watched index of consumer confidence rose in May to 83.8 from 81.0 in April.

The latest reading was the highest in six months, although some economists had hoped for an even stronger result. They said the labor market, where there is very little hiring, remains a primary concern.

April new-home sales rose 1.7 percent from March, to a seasonally adjusted annual rate of just over 1 million, the third fastest pace since the Commerce Department began tracking the data in 1963.

The Midwest posted the hottest sales in the nation, with a 13.4 percent gain.

Existing home sales also were brisk in April.

The Realtors' group said sales of previously owned homes increased 5.6 percent in April to a seasonally adjusted annual rate of 5.84 million units from a 5.53 million pace in March.

The median existing home price in April was $163,400, up 6.8 percent from the same month a year ago.

Rates on 30-year mortgages dropped to 5.34 percent last week, according to Freddie Mac, the mortgage giant based in Washington, D.C.

The strong housing market likely will continue, said Ian Shepherdson, chief U.S. economist with High Frequency Economics Ltd. in Valhalla, N.Y.

"With applications for new mortgages for house purchases recently hitting new highs, sales can be sustained at this level or even higher," he said.

Shepherdson added that the rise in existing home sales has as much to do with better weather in March as the end of the war. "Sales are well supported at this level, though rising supply means slower price increases."

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