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Sales of U.S. existing homes rose slightly in February for the first time since July 2007. However, prices posted a record drop from their year-ago level, but economists said it was unlikely the market had reached a bottom.

The National Association of Realtors on Monday said sales of previously owned homes rose 2.9 percent in February to a 5.03 million-unit annual rate, bucking expectations on Wall Street for a decrease.

While the rise broke a six-month streak of declining sales, prices continued to slip. The trade group said median prices fell 8.2 percent from their year-ago level to $195,900. It was the biggest year-to-year drop on record dating to 1968.

The heart of the housing crisis isn't about existing homes sales. The real issue is the millions of American homeowners who have no home equity or are upside down in their homes. For the millions of homeowners who are facing this situation the small up tick in home sales offers little solace.

The pick-up in existing home sales has helped cut into the bloated inventory of unsold homes on the market. NAR said the inventory fell 3 percent to 4.03 million units at the end of February. At February's sales pace that represented a 9.6 months' supply, the slimmest inventory since August but still high by historical standards.

It's important to remember that new home builder's massive inventories of unsold homes is not included in the NAR reports.

"That's not much of an improvement in inventory," said Gregory Miller, Chief Economist at SunTrust Banks in Atlanta. "As long as bank lending standards stay as tight as they have been, it will be a long correction process."

NAR also reported that sales decreased by 1.1 percent in the West, but were up 11.3 percent in the Northeast, 2.5 percent in the Midwest, and 2.1 percent in the South. Nationally, existing home sales have tumbled 23.8 percent over the past year.

by Tim and Julie Harris

A growing number of lenders are approving short sales as an alternative to foreclosure, says Doug Duncan, Mortgage Bankers Association chief economist.

The move is a way for lenders to avoid having to take over and manage property.

"The way banks see it, it's better than if the house goes into foreclosure, stands empty, and sees its value spiral downward before it's auctioned on the courthouse steps," says Duncan, who expects rising delinquencies to spark an increase in pre-foreclosure sales.

Though short sales put additional downward pressure on the national median home price, Fannie Mae chief economist David Berson says they also lower the number of foreclosures and can help ease the housing downturn. Short sales are hard to track, though, because they're not counted, making it impossible to know exactly how many occur.

Source: Bloomberg, Kathleen Howley (03/21/07)

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