Existing home sales rise unexpectedly in Feb

The pace of U.S. existing-home sales rose unexpectedly in February, but inventories of unsold homes also gained, according to a report on Friday that offered mixed news on the downtrodden housing sector.
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The National Association of Realtors said existing-home sales increased 3.9 percent to a 6.69 million-unit annual rate, the biggest gain since March 2004, as mild weather earlier in the winter spurred home buying.

Wall Street economists were expecting existing-home sales to slide to a 6.31 million-unit pace.

Wall Street economists were expecting existing-home sales to slide to a 6.31 million-unit pace.

In a sign that a wave of foreclosures in mortgages to borrowers with weak credit will impair the recovery of the housing market, the Realtors forecast sales declines of as much as 250,000 units annually among subprime borrowers over the next two years. This would be roughly 3 percent of overall home sales.

"Does that postpone the recovery in housing? Probably not. Does it slow the recovery in housing? Yes," NAR Chief Economist David Lereah told reporters. "Our numbers will not be as high as we thought they would be without the subprime mess."

Prices for U.S. government bonds slipped and the dollar rose on the better-than-expected sales performance, which was seen as diminishing the chances the
Federal Reserve would lower interest rates by mid-year.

February marked the third straight month existing homes sales had increased. It was the first time sales had risen three months in a row since the period ended in June 2004.

However, the February gain reflected a 14.2 percent rise in existing home sales in the Northeast, which Lereah said was likely the result of unseasonably warm temperatures in December and January. Existing home sales are recorded on closings of sales that typically lag the signing of a contract by four to six weeks.

Economists said a return to more seasonable weather would be needed before the underlying healthy of the slumping U.S. housing sector would become apparent.

"You will have to roll into March and April to get a good feel for the strength of the housing market," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.

Further clouding the picture, inventories of unsold homes on the market rose 5.9 percent to 3.748 million units. That represented a 6.7 months' supply at the current sales pace, up from 6.6 months' worth in January.

"We think the housing market will be a drag on the economy for most of this year," said Gary Thayer, chief economist, A.G. Edwards and Sons in St. Louis.

Falling prices have helped support sales. In February, the median existing home sales price was $212,800, up 0.9 percent from January but off 1.3 percent from a year ago. It was the seventh straight month in which prices were down on a year-over-year basis.