NEWS / Foreign Exchange

Existing Home Sales Advance, But Other Housing Market Information Cast Doubt

Sales of existing homes rose 3.9% to an annual rate of 6.460 million units in February after posting gains in each of the prior two months. In February, sales of existing homes rose in the Northeast (+14.2%), Midwest (+3.9%), and South (+1.6%) but held steady in the West. Sales of single-family homes increased 3.7% to 5.880 million units in February. Weather has played a role in boosting sales in the December-January period and part of the sales reported for February was probably booked in January.

The median price of an existing family home moved up to $212,800 in February from $210,900 in the prior month. On a year-to-year basis, the median price of an existing home is down 2.3%, marking the seventh consecutive decline.

There is a moderation in the pace of decline in prices of existing homes but anecdotal information and reports about subprime mortgages suggest that the housing market is still vulnerable. The recovery in sales of existing homes in the past three months appears to be a temporary improvement for these reasons. (1) Mortgage lending standards have been tightened after new guidelines from regulatory agencies. (2) Availability of mortgages to borrowers with poor credit history is reduced due to the closure of several subprime mortgage lenders. (3) Today??™s New York Times article titled ???Foreclosures Force Suburbs to Fight Blight??? (http://www.nytimes.com/2007/03/23/us/23vacant.html?hp) highlights some of the issues in the housing market ??“ from mortgage payment problems to foreclosures. (4) The latest upward trend of mortgage delinquency rates reported by the Mortgage Bankers Association. These are some of the factors that cast a doubt about whether the recent pickup in sales of existing homes is an improvement stemming from improved housing market fundamentals.

The inventory of existing homes for sale rose to a 6.7-month supply in February from 6.6-month mark in January. Foreclosures are not part of the inventory of unsold existing homes reported today. In other words, the February report on existing homes is not entirely reflective of current conditions prevalent in the housing market, information from the months ahead should be more representative of the true underlying factors affecting home sales.