Tuesday, March 27, 2007

U.S. Housing Sales Make Surprise Upswing

Peter Morton
CanWest News Service; Financial Post
Saturday, March 24, 2007

WASHINGTON -The struggling U.S. housing market took an unexpected bounce last month as sales of previously owned homes jumped the most in three years.

In what analysts say could be a key turning point, the U.S. National Association of Realtors said sales of homes jumped 3.9 per cent in February to an annual rate of 6.7 million, thanks largely to low interest rates on mortgages and pent-up demand.

"We expect the drag on the economy from housing will be gone by mid-year," said Dean Maki, chief U.S. economist at Barclays Capital in New York. He said the rebound is "an important development."

There were worries that huge unsold inventories and the continued deterioration in the subprime mortgage market would drag out the recovery in the housing market for months to come.

But February's sales figures seem to have put some of those worries to rest.

"Most of the housing adjustment is completed," said Eric Green, chief market economist at Countrywide Securities in Calabasas, Calif. "We're just not seeing the subprime problem in these numbers yet."

Analysts had expected February sales to fall by 2.5 per cent to 6.3 million from January's sales of 6.46 million.

Other economists are not convinced the worst is over.

"Sales cannot be sustained at this level, which is way above the pace implied by mortgage applications," said Ian Shepherdson, chief economist at High Frequency Economics.

Other economists said a return to warmer weather would be needed before the underlying health of the housing sector would become apparent.

"You will have to roll into March and April to get a good feel for the strength of the housing market," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

However, the build-up in unsold homes - up nearly six per cent in February to 3.8 million homes or a 6.7-month supply - will continue to weigh on the market.

"We think the housing market will be a drag on the economy for most of this year," said Gary Thayer, chief economist, A.G. Edwards and Sons in St. Louis.

David Lereah, the Realtors' chief economist, said the problems in the subprime market could limit house sales by as many as 250,000 homes over the next two years.

"It will spill over into the overall housing sector, but will be somewhat contained," Lereah said. "With the economy being healthy, this is a problem, not a crisis."

Meanwhile, the median price of an existing home fell 1.3 per cent last month from a year ago to $212,800 US, the Realtors group said.

Financial Post

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