After three consecutive months of higher existing home sales, they fell in February. Existing sales were down 9.6% from January to 4.88 million, according to the National Association of Realtors. Although analysts expected a decline, the month's performance was worse than the 5.1 million they predicted. This data suggests that home sales are probably settling around the 5 million mark, not in an enduring upward recovery.

First, here's the historic chart for existing home sales:

existing home sales 2011-02.png

You can see that they're now the lowest they've been since November. They're right around their early 2008 levels, before the financial crisis hit its climax.

Inventory increased as sales declined. In February, it was up 3.5% to 3.49 million. This reversed a five-month decline:

existing home inv 2011-02.png

And remember, inventory is rising despite foreclosures remaining artificially low as banks continue to fix their processes. That's not a good sign.

Finally, the median existing home sale price declined for the eighth month straight to $156,100. That's 5.6% lower than the median price in February 2010.

Here's NAR Chief Economist Lawrence Yun explaining why sales have declined:

Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers.

Credit may be "unnecessarily tight" according to NAR, but banks would likely disagree. They have instituted enhanced credit criteria for a reason -- to avoid the sorts of losses seen during the housing bubble when credit was too loose. Moreover, these contract cancellations sound like sales that should not be occurring. If a buyer and seller agree on a price based on a bogus valuation, then the sale should not happen.

The other likely issue that Yun does not mention is simply weak demand. Unemployment remains high and home prices have begun declining again. That's a pretty obvious recipe for relatively weak home buying demand on the part of consumers.

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