From Homescape

On Monday, after six straight months of falling home sales, the National Association of Realtors (NAR) reported an unexpected increase in February. But don’t break out the bubbly quite yet. Some economists argue that it’s still too early to predict a housing turn-around.

According to a CNNmoney.com report, though February’s pace beat economists’ expectations, sales last month were still down 23.8 percent from a year earlier. Economists surveyed by Briefing.com expected the report to show existing home sales slowed to an annual pace of 4.86 million. Some experts point to the record plunge in existing home prices as a contributing factor to the February increase.

Taking the good with the bad
The median price of a home sold during the month fell 8.2 percent to $195,900 from $213,500 a year earlier — the largest year-over-year price drop on record. Before the start of the current housing slump, it had been 11 years since prices declined, when compared with the same period a year earlier.

NAR’s latest report showed that sales by homeowners rose 2.9 percent in February to a seasonally adjusted annual pace of 5.03 million, up from January’s reading of 4.89 million. It was the first month-over-month rise of the annualized pace since July.

The Northeast region led the surge in home sales with 11.3 percent increase. Sales were up 2.5 percent in the Midwest and 2.1 percent in the South, according to the report. Nationwide sales of existing homes had plummeted by 12.7 percent in 2007, which was the biggest decline in 25 years.

As a result of the subprime fallout, over the last year many lenders have enforced stricter guidelines, denying many aspiring new home buyers the loans they need to move forward with the home buying process. These tougher restrictions should have been in place two years ago. But instead, lenders turned a blind eye to a person’s financial portfolio and here we are today knee deep in foreclosures and excess home inventory. The subprime frenzy created an entire class of new home owners that should have remained renters.

Correcting the problem
In a battle to balance out supply and demand, home builders have finally begun to scale back on new projects, and as a result NAR reported a decrease in home inventory in January. The report showed that there were 4 million homes available for sale, which represents a 9.6 month supply. That was down from a 10.2-month supply in December.

Home prices will continue to fall in various regions across the country, especially in states like Florida and California, which were hardest hit by foreclosures and the credit crunch. As home prices continue to fall, property values will decline and some owners will be faced with the dilemma of paying more on their mortgage than the home is worth. But walking away from your home isn’t going to solve the problem. Owners and lenders need to spend the next year working closely together to find alternatives. The market will not get better if housing inventory and foreclosures continue to balloon. While NAR’s recent report does reflect a glimmer of hope, the market has a long way ahead before we breakout our party hats and champagne glasses.

Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com.