Economists react to the higher than expected increase in existing home sales.

By Sara Murray

The report will certainly offer some encouragement to the markets as the broad-based nature of the increases suggests that buyers may be taking advantage of the improved affordability. However, with the inventory of unsold homes continuing to be high, and the U.S. labour market remaining depressed, we do believe that the housing correction still has some way to go, though we would admit that the pace of adjustment may be less pronounced than has been the case in the past few months. –TD Securities

Today’s boost in sales was primarily the result of an increase in single-family activity, which is better than the more volatile multifamily alternative, though given the enormous volume of foreclosure auctions held during the month, it’s hard to place major weight on this sales increase. Still, the stability in median and outright increase in average price of homes sold suggests the impact of foreclosures might not have been in severe in February as feared. –Guy LeBas, Janney Montgomery Scott

Existing home sales peaked during the summer of 2005 and have fallen fairly steadily since then. However, the rate of decline has slowed in recent months, suggesting a bottom may be near. However, a substantial portion of the sales are of distressed properties, which is depressing home prices…Home prices have been falling on a year-on-year basis for more than 2 years and, in recent months, the price declines have accelerated. As long as inventories stay very high and a high proportion of sales are distressed, prices will continue to decline. In addition, because of tighter mortgage lending standards, a sustained recovery in the housing market is unlikely, at least while home prices are continuing to fall. –Steven A. Wood Insight Economics

A slight positive here is that the homes available for sale numbers are not seasonally adjusted, and the months’ supply often sees an increase in February heading into the spring. So at least the supply picture didn’t get worse as it often does in February, but the market fundamentals are still rough heading into the key spring selling season as foreclosed homes continue to flood the market. On the positive side, mortgage rates should be moving down towards record lows in coming weeks in response to the Fed’s Treasury and sharply boosted MBS purchase plans, raising conventional measures of housing affordability further into record territory. –David Greenlaw and Ted Wieseman, Morgan Stanley

This increase reverses the January drop and puts sales back in line with their fourth quarter average, though that is hardly a cause for celebration. Still, we think there’s a good chance the post-Lehman collapse in activity is now over, though a sustained recovery is still a long way off. With median prices down 15.5% y/y the implied real mortgage rate is still a massive barrier to people pondering home purchase. –Ian Shepherdson High Frequency Economics