Existing home sales fell 0.6% in February from 5.05 million in January to 5.02 million at a seasonally adjusted annual rate. Single-family existing home sales fell even more — down 1.4% — from 4.43 million to 4.37 million. On a more positive note, both total and single-family sales were up on a year-over-year basis — by 7.0% and 4.3%, respectively.

February marked the third month in a row that existing home sales fell since  topping out in November. The February decline was partly the result of some  existing home sales (closings) that would have taken place in December and early this year being shifted into November to qualify for the first-time home buyer tax credit; but more factors than time shifting and weather were probably responsible for February’s larger-than-anticipated decline in sales.

The extended and expanded credit requires a signed contract by April 30 and settlement by June 30 (see www.FederalHousingTaxCredit.com for details), leaving potential buyers of existing homes four months beyond February to complete a sale. There was a similar delayed reaction to the 2009 credit.

Existing home sales are expected to rise in subsequent months as the June 30 deadline approaches and this likely will be followed by another plateau in mid- to late-summer from the time shifted sales. After the expiration of the credit, overall economic activity should be picking up enough to support the housing recovery.

New home sales (based on a signed contract) also failed to rebound in February despite the looming  April 30 contract deadline. February new home sales hit an all-time record low seasonally adjusted annual rate of 308,000, down 2.2% from January’s already low 315,000 sales.

While weather and the November tax credit deadline were partially responsible, builders also cited  consumer concerns over job security and stiff competition from sales of foreclosed and distressed homes.

Facing a June 30 delivery deadline, builders are going to  find it difficult to add to their current for-sale inventory to accommodate demand stemming from the tax credit. At this point, buyers in the new home market seeking to take advantage of the tax credit will have to take a completed or nearly completed property already in the builder’s inventory.
 

At a minimum, housing prices have been falling at a much slower pace, and they have stabilized in many markets. As of January, the S&P/Case-Shiller seasonally adjusted 10-city and 20-city price indexes had both risen for eight consecutive months.

On a year-over-year basis, the 10-city index was virtually flat from January 2009 (down 0.04%) and the 20-city index was down a scant 0.7%  compared to the double-digit rate of decline  prevailing from January 2008 through August 2009. The rate of price decline has been falling since January of last year. Twelve of the markets in the 20-city index  saw rising prices in January on a seasonally adjusted basis.

The Loan Performance Home Price Index produced by First American CoreLogic showed similar results, with house prices down 0.7% in January from the same month a year earlier. Excluding distressed sales, the index was down 0.4%. The year-over-year percentage decline in the index has been falling since it bottomed out at -20.1% in February 2009. From February 2008 through August 2009, the year-over-year price decline was in the double digits.

And the Federal Housing Finance Agency (FHFA) purchase-only price index fell a minimal 0.1% from the third quarter to the fourth quarter of 2009 on a seasonally adjusted basis — leaving prices in last year’s final quarter down 1.3% from their level a year earlier. Prices increased in 27 states in 2009’s fourth quarter, and declined  by less than 0.5% in another eight.

A 5.2% increase in February’s median new home price from a year earlier — from $209,700 to $220,500 —  likely reflects a compositional shift in sales to the mid-price range, offsetting sales at the low end. Median existing home prices still seem to be suffering the effects of foreclosed home sales and short sales. February’s median was $164,300, down 2.1% from $167,900 in February 2009.

House price stability is a critical element in bringing back home buyers. For the last three months, the Michigan consumer sentiment survey has shown an increase in the number of respondents who believe now is a good time to buy, and one of the reasons cited has been an increase in low house prices.

The pent-up demand  coming off more than three years of sub-normal household formation rates will help  stabilize prices even as additional foreclosures come into the marketplace. [return to top]
 

Building material prices, which generally fell during much of the housing recession, are now showing signs of rising. Although price increases to date have been relatively modest overall, the cost of some materials has jumped considerably —  including lumber, energy and copper.

The cost of building materials for single-family construction was up 1.3% on a year-over-year basis in February; multifamily  materials prices were up 1.5%. [return to top]
 

Mark Zandi, of Moody’s Analytics, and Chris Varvares, of Macroeconomic Advisers, will join NAHB Chief Economist David Crowe for a macro-level look at the state of the nation’s economy and its impact on housing.

To register, visit www.nahb.org/cfc. [return to top]