US sales of previously owned homes may have held close to a record in May as low borrowing costs and rising incomes fuelled demand, economists said in advance of a private report Thursday.

The National Association of Realtors may say sales of previously owned homes totalled 7.15 million at an annual rate last month, second only to the record 7.18 million pace set in April, according to the median forecast of 56 economists surveyed by Bloomberg News.

Mortgage rates that fell in April and May on their way to a 14-month low helped keep US home sales headed towards a fifth straight record in 2005. Forecasters expect housing demand to support economic growth this year, even as some economists, including Federal Reserve Chairman Alan Greenspan, raise concern that surging home-price appreciation may be unsustainable.

"The robust sales rates reflect generally sound fundamentals of growing employment and personal income, along with the latest unexpected dip in long-term interest rates," said Peter Kretzmer, a senior economist at Banc of America Inc in New York. "Greenspan has correctly pointed to the spread of interest-only and other exotic financing instruments as an indication of excess."

The National Association of Realtors is scheduled to issue the report at 10 am in Washington. Estimates in the Bloomberg survey ranged from 6.9 million to 7.35 million.

A separate report, due from the Labour Department at 8:30 am Thursday, is expected to show first-time claims for unemployment benefits fell to 330,000 in the week ended June 18 from 333,000 the prior week.

Sales of new homes, to be reported by the Commerce Department tomorrow, are projected to rise to a 1.32 million rate, surpassing April's 1.316 million as the most ever.

New-home sales

Sales of new homes are tabulated when contracts are signed, while existing home sales are tabulated at closing, often a month or two after a contract. Contracts to buy previously owned homes, known as the pending sales index, rose to a record in April, the National Association of Realtors said on June 1.

Sales of existing single-family houses, condominiums and co-operatively owned apartments will rise to 6.89 million this year from last year's all-time high of 6.78 million, the group forecast in its monthly report issued on June 8.

Mortgage rates

"We've just seen a record level of single-family construction and home sales here in the first part of 2005, and it's been fuelled by low mortgage rates," said Frank Nothaft, chief economist at Freddie Mac. "We saw mortgage rates ease again over the last couple of months."

Thirty-year mortgage rates have exceeded 6 per cent for only two weeks this year, dropping to 5.56 per cent in the week ended June 10, the lowest since April last year, according to Freddie Mac, the second-biggest purchaser of US mortgages. The average rate for the past decade is about 7 per cent.

Higher incomes are also boosting demand. Workers' average hourly earnings in May rose 0.2 per cent after a 0.3 per cent gain the previous month and average weekly earnings also rose, the Labour Department said on June 3. The jobless rate fell to 5.1 per cent last month from 5.2 per cent.

Housing markets "are fuelled by income growth and job growth," said Stuart Miller, chief executive officer of Miami-based Lennar Corp, the third-largest US homebuilder by stock market value. "It's a fundamentally strong market."

Speculation

Surging home prices and increased speculation have raised concern that some markets may overheat. Increases in prices are outstripping those of personal incomes in more than three quarters of the top 52 US cities, according to a report this week from Merrill Lynch & Co.

"If housing prices declined by even small percentages, that's very much of a negative relative to where we have been in the past," said Bill Gross, chief investment officer at Pacific Investment Management Co and manager of the world's biggest bond fund.

Federal Reserve Governor Mark Olson also said this week that policy makers are watching the issue "very closely."

"There are some markets where the increase in value is unsustainable," Olson said after testifying to Congress about banking regulations. "There clearly is some froth in some markets but we still don't see a nationwide housing bubble."

There are signs that the jump in prices isn't yet straining most homebuyers. The number of US homeowners making late payments on their mortgages fell in the first quarter, the Washington-based Mortgage Bankers Association said in a report Thursday.

Source: China Daily