The U.S. housing sector hit another detour on the road to recovery in February. Existing-home sales fell 0.6% to a 5.02 million-unit annualized rate -- the third straight monthly decline, the National Association of Realtors announced Tuesday. February's sales rate was the lowest in eight months, the NAR said.
A Bloomberg News economists survey had expected February existing-home sales to slip to a 5 million-unit annualized rate, after notching a 5.05 million-unit rate in January.
On a year-over-year basis, existing-home sales are still up 7% from the 4.69 million-unit rate recorded in February 2009.
Inventories of existing homes rose 9.5% to 3.59 million units in February. That's an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Still, despite February's inventory rise, supplies have fallen 5.51% in the past year. Economists say a healthy, normal existing-home market has a three- to five-month supply.
A Key Deadline Is Approaching
Lawrence Yun, NAR chief economist, said February's winter storms may have postponed sales, but the event to watch will be the expiration of the homebuyer tax credit.
"Some closings were simply postponed by winter storms, but buyers couldn't get out to look at homes in some areas, and that should negatively impact near-term contract activity," Yun said in a statement. "The key test for a durable recovery comes in the next few months as the tax credit deadline approaches. If we see a surge in homebuying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization."
Investors and potential homebuyers should keep in mind that Congress extended and expanded the home-purchase tax credit -- $8,000 for first-time buyers and $6,500 for repeat home buyers -- with an April 30, 2010, deadline to sign a contract and qualify for the credit.
Median Prices Nationally Ticked Upward
The U.S. median home price for all types of housing was $165,100 in February, a 1.8% increase compared to February 2009. The median existing single-family home price was $164,300, a 2.1% drop from February 2009. The median existing condominium price was $170,200, an 0.2% dip from February 2009.
By region, existing-home sales in February rose 2.4% in the Northeast, where the median price rose 7.5% to $254,700 compared to a year ago. Sales rose 2.8% in the Midwest, where the median price fell 2% to $128,000. In the South, sales dipped 1.1%, with the median price falling 4.2% to $139,600. In the West, sales declined 4.7%, with the median price plunging 9.8% to $207,900.
Economists and market analysts keep a close watch on monthly existing-home sales because previously owned homes account for the bulk of U.S. sales. Also, when homes are sold, homeowners tend to buy durable goods and big-ticket items for the new house: furniture, appliances, landscaping equipment, home care supplies, etc. Uptrends in such sectors is good news for the economy and bullish for U.S. stocks.
The key takeaway from February's data obviously is the three-month sales downtrend: Existing-home sales aren't showing strength, despite the federal homebuyer tax credit. If that trend continues, economists will begin to raise doubts about the sustainability of housing's recovery -- something that would weigh on U.S. GDP growth. Also, existing-home inventories keep rising, but they'll have to decline well below a five-month supply to help median home prices firm.