Fears of US property bust revive on record new-home sales

Sales of new homes in the United States surged 4.0 percent in June to a new annualized high of 1.37 million, the government said, reviving fears of a damaging property bubble.

The seasonally adjusted figure smashed the previous record of 1.32 million set last month, the Commerce Department said, underlining signs that the US property market remains red-hot.

Some analysts warned the market may be getting too hot, with buyers encouraged by low interest rates into the false belief that prices can only continue to go up.

The Federal Reserve has hiked interest rates at nine meetings running, and is expected to hike the benchmark rate by another 25 basis points to 3.50 percent when it next meets on August 9.

But at that level, rates are still historically low, and the housing boom has been strong enough to attract the concern of Fed chairman Alan Greenspan.

He told Congress a week ago that explosive rises in property prices appear "to have charged some regional markets with speculative fervour."

Greenspan warned in particular that holders of variable rate mortgages could be intensely vulnerable to tighter borrowing costs.

Many fear that a property slump could hit the US economy even harder than the collapse of the "dotcom" frenzy of the late 1990s, given how widespread home ownership is.

Wednesday's figures came after the National Association of Realtors reported Monday that sales of existing homes rose 2.7 percent to a record annual rate of 7.33 million.

The June gain in new sales caught observers by surprise. Economists had forecast the figure to inch lower to 1.3 million in the month.

"A larger-than-usual portion of those sales were of homes whose construction has not yet begun," Nomura economists said in a research note.

"That portends continued strength in housing construction through the end of this year."

However, Nomura cautioned: "A drop in both the median and average new home price may be an early sign that the speculative boom in the housing market has peaked."

The median price of a new home fell 5.5 percent in June to 214,800 dollars from the previous month. The median price is down 0.4 percent in the past year.

Joel Naroff of Naroff Economic Advisers issued a stronger warning.

"While it's fun to see new home sales records set every month, this is getting out of hand and is raising real questions about the potential for a major bubble burst," he said.

New housing sales rose across the United States. Sales climbed 7.2 percent in the Northeast, by 5.1 percent in the South, by 2.1 percent in the Midwest and by 2.8 percent in the West.

Other economists say that housing-market fundamentals, including mortgage interest rates, remain very strong.

"In short, housing demand is on fire. At some point, the sector is bound to cool off, but it is hard to see how in the near term," said Steve Stanley, economist at RBS Greenwich Capital.

But Naroff said too many buyers had been suckered into entering the property market at unaffordable prices, setting the stage for spiralling inflation.

"Welcome to our worst nightmare. It is the housing market," he said.

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