U.S. home sales increased unexpectedly last month for the first time since the middle of last year, a sign that homebuyers are taking advantage of big drops in prices.
Figures released yesterday by the National Association of Realtors show the median price of an existing home fell more than 8 percent last month from a year earlier, the largest decline since the trade group began tracking the market in 1968. Sales, on the other hand, rose in February over January, breaking a six-month downward streak.
The end of the housing downturn? No, said Mark Zandi, chief economist at Moody's Economy.com, but he thinks it is "the beginning of the end." He and many economists have been saying for months that the housing market won't right itself until prices drop significantly.
"Sellers are cutting prices, and that's now putting a floor under sales," said Zandi. "That's the first step in what will be a long housing bottom."
In the Baltimore metro area, where the median home price dropped 2.5 percent last month, the jump in sales was the largest January-February increase since at least 2000.
The positive housing report helped drive a rally on Wall Street yesterday, where the Dow Jones industrial average gained nearly 190 points. Other major indexes also rose.
Economists hope that recent government efforts to loosen seized-up credit markets will buoy sales by making home loans more available. The government has eased restrictions on major mortgage financiers Fannie Mae and Freddie Mac, and has also raised the ceiling for mortgages insured by the Federal Housing Administration. The Federal Housing Finance Board said yesterday that it would allow the Federal Home Loan Bank System to purchase more of Fannie Mae's and Freddie Mac's mortgage-backed securities - a move that could pump more than $100 billion into the mortgage market.
The lending environment is critical for housing. Sales seemed to be improving a year ago, too, and then the credit crunch hit. That's why some economists say it is too soon to tell if the newest home-sales numbers are a trend.
"It could be - could would be the operative word," said Adam G. York, an economic analyst at Wachovia Corp. who follows the housing market. "We're very, very reluctant to call a bottom here."
He notes that the number of unsold homes, which fell about 125,000, to 4 million last month, is still very high. It would take 9.6 months to sell them all at the current pace, more than twice the interval in 2005.
And though sales rose almost 3 percent from January, they are still down nearly 24 percent from a year earlier.
Baltimore and the five surrounding counties saw an even steeper falloff in sales from a year earlier, down 33 percent. Prices are higher here than in the nation as a whole - a median of $262,500 compared with $195,900 - and haven't been dropping as fast.
Lawrence Yun, chief economist for the National Association of Realtors, suspects that some local buyers "are just waiting it out to see how much prices decline" while others are holding off because they can't afford to buy.
"A price drop would help that picture," Yun said.
Baltimore-area prices were still rising when the national numbers began to fall months ago, according to data from Metropolitan Regional Information Systems Inc., which tracks area sales through the multiple listing service. But median prices in the area have now fallen for four months straight, which might explain the bigger-than-normal pickup in sales from January to February.
Nationally, Yun said, some areas seeing big price decreases - such as Sacramento, Calif., and Fort Myers, Fla. - are also seeing better sales activity.
"It is bringing people back into the marketplace," he said.
Peter J. Forbes, a Baltimore real estate investor who rehabs houses to sell, is seeing that dynamic here.
"You drop the price, you get the sale," he said.
It's a painful change for homeowners. Nationally, median prices last month were down to mid-2004 levels, which means people who bought after that are in danger of owing more on their mortgages than their house is worth. Moody's Economy.com says that 6.5 million U.S. homeowners - about one out of eight with mortgages - had zero or negative equity in their properties at the end of 2007.
It's not just that prices have dropped. Loose lending standards during the housing boom allowed borrowers to put little or no money down because everyone kept banking that values would keep going up. Lenders also OK'd loans that people really couldn't afford.
As homeowners began defaulting in alarming numbers, mortgage companies tightened their standards and Wall Street investors pulled out, cutting off a major source of money for new loans. That's made it harder - and more expensive - for anyone but a borrower with great credit and a sizable down payment to get a loan now, Zandi said.
The good news for buyers is that mortgage rates, which began rising at the end of January as problems with financial institutions mounted, appear to be falling. The average rate for a 30-year fixed loan has fallen under 6 percent, according to the Mortgage Bankers Association survey, and Jay Brinkmann, the group's vice president for research and economics, expects it to show another drop tomorrow. The Federal Reserve's new lending provisions for banks, announced a week ago, are already helping, he said.
Temporarily increased borrowing limits for Fannie Mae and Freddie Mac loans as well as FHA-insured mortgages should also help the housing market in the near term, economists say.
"The liquidity hasn't really flowed into the housing market yet," Yun said. "I think the second half of the year should be better."