Sales of previously owned homes in the U.S. unexpectedly rose in February at the fastest pace in three years, a sign the housing market is still recovering even as lending standards tighten.
Purchases increased 3.9 percent last month to an annual rate of 6.69 million, from 6.44 million in January, the National Association of Realtors said today in Washington. Sales were down 3.6 percent from a year earlier.
The report, together with a gain in February housing starts reported this week, bolsters the view that housing will gradually stop being a drag on economic growth. Falling prices and low borrowing costs are supporting demand, easing concern that defaults on subprime mortgages will worsen the glut of homes, economists said.
Steady interest rates were a reason for the increase:
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.16 percent in the last week, down from an average of 6.29 percent in February. The 30-year fixed was 6.22 percent in January, and 6.25 percent in February 2006.
OK -- now the bad news:
The national median existing-home price2 for all housing types was $212,800 in February, down 1.3 percent from February 2006 when the median was $215,700. The median is a typical market price where half of the homes sold for more and half sold for less.
Total housing inventory levels rose 5.9 percent at the end of February to 3.75 million existing homes available for sale, which represents a 6.7-month supply at the current sales pace compared with a 6.6-month supply in January. Raw inventories peaked last July at 3.86 million, and supplies topped at 7.4 months in October.
To sum up, sales increased because prices are dropping. But inventory levels are still increasing. Also note that from a raw, total numbers perspective, the total number of existing homes on the market has only dropped 2.84% since July of last year. That means sales haven't really made a huge dent in the inventory on the market. While the market is never "cleared", it should come down a bit more than it has.
Going forward prices will probably have to drop more to clear the market.