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.
