WASHINGTON (Reuters) - Sales of U.S. existing homes rose in February for the first time since July as prices posted a record drop from their year-ago level, but economists said it was unlikely the market had reached a bottom.
The National Association of Realtors on Monday said sales of previously owned homes rose 2.9 percent in February to a 5.03 million-unit annual rate, bucking expectations on Wall Street for a decrease.
While the rise broke a six-month streak of declining sales, prices continued to slip. The trade group said median prices fell 8.2 percent from their year-ago level to $195,900. It was the biggest year-on-year drop on record dating to 1968.
The data helped U.S. stocks build on earlier gains and undercut prices for government bonds. At the same time, the dollar rose against the euro and the yen as traders saw the report suggesting the economy may not be as weak as feared.
Still, analysts took the report with a grain of salt.
Gary Shilling, president of the investment advisory firm A. Gary Shilling & Co., said the normal dearth of sales at this time of year meant the adjustments made to the data to account for seasonal variations could have distorted the picture.
“The real number of importance is the price,” he said. “Prices are declining and that’s wiping out the equity of many people. People are literally under water on their houses and are walking away.”
The U.S. housing market’s free fall and a credit crisis touched off by rising mortgage defaults have likely tipped the economy into a recession that could prove severe if tight financial market conditions do not ease, many economists believe.
In a separate report, the Chicago Federal Reserve Bank said its index of U.S. economic activity slipped to -1.04 in February, the lowest since April 2003. The drop pushed a three-month average of the index deeper into territory that can signal recession.
“There is an increasing likelihood that a recession has begun,” the Chicago Fed said.
The pick-up in existing home sales helped cut into the bloated inventory of unsold homes on the market. NAR said the inventory fell 3 percent to 4.03 million units at the end of February. At February’s sales pace that represented a 9.6 months’ supply, the slimmest inventory since August but still high by historical standards.
“That’s not much of an improvement in inventory,” said Gregory Miller, chief economist at SunTrust Banks in Atlanta. “As long as bank lending standards stay as tight as they have been, it will be a long correction process.”
Sales decreased by 1.1 percent in the West, but were up 11.3 percent in the Northeast, 2.5 percent in the Midwest and 2.1 percent in the South, NAR said. Nationally, existing home sales have tumbled 23.8 percent over the past year.
Additional reporting by Ros Krasny in Chicago, and Jennifer Coogan and Richard Leong in New York; Editing by Andrea Ricci