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The Honolulu Advertiser
Posted on: Thursday, August 25, 2005

New home sales hit record high

By EDWARD IWATA
USA Today

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The Commerce Department said yesterday that new home sales surged to a record in July, fanning the debate about whether the torrid housing market is an investment bubble poised to pop.

New home sales in July grew 6.5 percent to a seasonally adjusted annual rate of 1.41 million from 1.32 million in June, the government reported.

The government data contrast with numbers released Tuesday by the National Association of Realtors, which showed a slowdown in the market for existing homes. The trade group said July sales of homes fell 2.6 percent to an annualized rate of 7.16 million from June.

Economists at UBS Securities warned yesterday that the data on housing sales and prices are volatile and tricky to read at this point.

"I don't think housing is shooting up anymore, but nor is it plunging," says James O'Sullivan, a UBS economist. "There is some evidence that housing is peaking or edging down, although there's no real significant weakness yet" in the economic data.

The UBS economists wrote that declines in home sales and prices "are likely to be modest" — unless mortgage rates rise enough to slow home-buying.

Joel Naroff of Naroff Economic Advisors in Holland, Pa., says it's troublesome that home sales are booming the most in the West and Northeast.

"That's where the insanity in prices is now," Naroff says. "We may be in a panic mode. People are getting in as quickly as they can in order not to get priced out of the market, and that is not sustainable."

The Commerce Department reported yesterday that new home sales in July soared 36 percent in the West and 10 percent in the Northeast — but swooned 14 percent in the Midwest and 4 percent in the South.

Naroff cautioned that speculation is rampant, although there's no solid economic data on how many home buyers are "flipping," or selling, their houses shortly after buying them.

Recently, Naroff says, office workers who cannot afford pricey real estate purchases have been telling him about their investment plans for flipping condos.

That reminds him of the apocryphal Wall Street stories that it's time to dump your stocks when shoeshine men and taxi drivers tell you where to invest.

"Yes, a lot of people have made money off the housing market, but logic says the market has to turn," Naroff says. "You know we're headed for potential calamity."