Sept. 26 (Bloomberg) -- U.S. sales of previously owned homes surged to the second-highest level on record in August, spurred by steady job growth and interest rates within a percentage point of historic lows.

Existing home sales rose 2.0 percent to a 7.29 million annual pace last month from a revised 7.15 million rate in July, the National Association of Realtors said today in Washington. The median price rose to an all-time high of $220,000 and the supply of homes for sale rose from the previous month.

``Housing is strong because of low interest rates,'' said David Sloan, chief U.S. market economist of 4Cast.com in New York, who forecast 7.40 million. ``Because of the aftermath from Katrina, there will probably be a pickup in sales.''

Sales of existing homes this year will reach a record, as Hurricane Katrina's drag on the economy will hold interest rates near historic lows, the Realtors said Sept. 13. Steady job creation and ready access to affordable loans are also spurring the housing market, even after Federal Reserve Chairman Alan Greenspan as recently as June said the pace of price gains was ``unsustainable.''

Economists surveyed by Bloomberg News expected home resales would fall 0.6 percent to 7.12 million from July's previously reported 7.16 million pace. Estimates ranged from 7 million to a high of 7.4 million.

Existing home sales account for about 85 percent of all sales. Purchases of new homes, to be reported by the Commerce Department tomorrow, account for the rest.

Sales of single-family homes rose 1.9 percent to a 6.35 million annual pace in August, the Realtors group said. Sales of condos and co-ops rose 2.2 percent to a 942,000 annual pace.

Total sales were up in three of four regions. They rose 5.6 percent in the West to a 1.69 million-unit pace, 1.9 percent in the Midwest to a rate of 1.64 million units, and 1.7 percent in the Northeast to 1.21 million units. Resales fell 0.4 percent to a 2.74 million-unit pace in the South.

The supply of homes available for sale, another gauge of housing demand, increased to 4.7 months' worth in August, from 4.6 months' worth the previous month.

Existing home sales this year may increase 3.4 percent to 7.02 million from last year's record, the Realtors' group said in its revised forecast after Hurricane Katrina struck the Gulf Coast on Aug. 29, killing more than 1,000 people and displacing hundreds of thousands. It said new home sales would rise 6.7 percent this year to 1.28 million, also a record.

Materials Shortages

Shortages in building materials along the Gulf Coast will increase construction costs and support housing-price gains, the Realtors' group said. The national median price for housing of all types is forecast to rise 10.8 percent this year, the group said.

In the past five years, the average home has increased 53 percent in value, the Office of Federal Housing Enterprise Oversight said in a Sept. 1 report.

Even before the slowing effects of Hurricanes Katrina and Rita, steady job creation, low interest rates and increased use of non-conventional financing, such as interest-only and adjustable- rate loans, had allowed the housing market to keep growing for a fifth year.

Payrolls

The unemployment rate fell to 4.9 percent in August, the lowest since late 2001. Employers added 169,000 workers last month and growth in non-farm payrolls has averaged 194,000 a month this year, a pace likely to surpass last year's 2.2 million new jobs.

Fixed 30-year lending rates averaged 5.82 percent in August compared with 5.66 percent in July and 5.87 percent in August 2004, according to Freddie Mac, the second largest buyer of mortgages. Rates have remained within a percentage point of the all-time low of 5.21 percent reached in June 2003, even after the Federal Reserve's 11 consecutive quarter-point increases in short term rates.

The Fed on Sept. 20 raised the benchmark interest rate for to 3.75 percent. Long-term rates so far have been slow to respond to the Fed's increases in short-term rates, a phenomenon Greenspan has repeatedly called a ``conundrum.''

``Even though the Fed has increased short-term rates, long- term rates have remained relatively low,'' Angelo Mozilo, chairman of mortgage-lender Countrywide Financial Corp. said in a Sept. 13 interview in New York. ``Mortgage rates are at very good levels for the consumer and they continue to keep on buying and keep on refinancing.''

New Home Sales

New home sales that unexpectedly rose 6.5 percent to a record 1.41 million units in July augured well for existing home sales in August, said Bill Mulvihill, economist at Claymore Investments in Lisle, Illinois. New home sales are counted when contracts are signed, while existing sales are registered when the sales are closed, a month or two later.

New home sales for August are expected to number 1.35 million at an annual rate, according to a Bloomberg survey.

The housing market has been the main driver of the U.S. economy this decade, accounting for 50 percent of the overall growth and more than half of the private payroll jobs created since 2001, Merrill Lynch said in a report on Aug. 15.

Builders Optimistic

Builders continue to be optimistic. Los Angeles-based KB Home, whose shares are the best performers among U.S. homebuilders this year, raised its earnings forecast for the year after profit almost doubled in the latest quarter on a surge in home sales and an increase in prices.

``We continue to see high levels of demand in each of our product offerings, particularly in markets where housing supply remains constrained,'' Chief Executive Officer Bruce Karatz said in a statement on Sept. 22.

To contact the report on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: September 26, 2005 10:00 EDT