Sales of previously owned U.S. homes plunged in February and prices hit their lowest level in nearly nine years, indicating a housing market recovery was still a long way off.
The National Association of Realtors said on Monday sales fell 9.6 percent month over month to an annual rate of 4.88 million units, snapping three straight months of gains. The percentage decline was the largest since July.
The weak sales were the latest evidence of the malaise in the housing sector and confirmed it would remain outside the strengthening and broadening economic recovery.
“The housing market is still very depressed and a major drag on the economy, especially household net worth,” said Chris Christopher, a senior economist at IHS Global Insight in Lexington, Massachusetts.
Economists had expected a decline of only 4 percent to a 5.15 million-unit pace. The actual drop was greater than even the most pessimistic forecast in a Reuters survey of 53 economists.
Analysts said harsh winter weather in January could have curbed February sales. Existing home sales are measured when contracts are closed and last month’s sales decline was telegraphed by a drop in January’s pending contracts.
The Realtors’ group also said tight credit conditions and home appraisals that fell short of agreed-upon selling prices weighed on sales.
A glut of homes on the market and a flood of foreclosures are holding back recovery in the housing sector, whose collapse helped to tip the U.S. economy into its worst recession since the 1930s.
In addition to the weak housing market, rising crude oil prices are a threat to the economy’s recovery and a survey on Monday showed about three-quarters of Americans were scaling back spending because of high gasoline prices.
PLUNGING HOUSE PRICES A WORRY
U.S. financial markets largely ignored the data, with stocks on Wall Street ending 1.5 percent higher. Prices for U.S. government debt fell and the dollar hit a fresh 4-1/2-month low against the euro but rose against the yen.
Though economists cautiously hope an improving labor market will lift home sales in the months ahead, plunging house prices could throw a spanner in the works.
NAR said the median home price dropped 5.2 percent in February from a year earlier to $156,100, the lowest since April 2002, in a sign of the relentless downward pressure on prices from a market flooded with foreclosure sales.
“If the price declines persist, even with the job market recovery, that could hamper recovery in the housing market,” said Lawrence Yun, the trade group’s chief economist.
Data last week showed a plunge in housing starts and the government on Wednesday is expected report a marginal rise in new single-family home sales in February. Home resales make up more than 90 percent of national sales and economists said they would continue to weigh on new home sales and building.
Foreclosures and short sales, which typically occur below market value, accounted for 39 percent of transactions in February, the highest since April 2009, up from 37 percent the prior month, the trade group said. All-cash purchases made up a record 33 percent of transactions in February.
According to the Realtors’ group, new home prices have been running 45 percent higher than existing home prices, a premium that is historically about 15 percent, indicating previously owned homes are selling well below the cost of construction.
At February’s sales pace, the supply of existing homes represented an 8.6 months’ supply, up from 7.5 in January. A supply of between six and seven months is generally considered ideal, with higher readings pointing to lower house prices.
“Inventory is still high, about a third higher than it was pre-recession. We are not going to see any bounce back in new home sales until the inventory of existing home sales gets worked down,” said Steve Blitz, a senior economist at ITG Investment Research in New York.
“We don’t even know what the inventory is. We see a visible supply but then there is a shadow supply that comes on and off the market depending on the time of the year. It’s still a morbid market on a national level.”
Sales last month fell across the board, with multifamily dwellings declining 10 percent and single-family home units dropping 9.6 percent. Compared with February last year, overall sales were down 2.8 percent.
While sales plunged in all regions last month, economists said the pattern was likely to become less uniform in the months ahead, with regions where the labor market is fairly strong showing more life than others.
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