The Wall Street Journal

WASHINGTON — Demand for existing homes climbed in February above expectations, driven by foreclosure sales that are sending prices plunging.

Home resales rose 5.1% to a 4.72 million annual rate from 4.49 million in January, the National Association of Realtors said Monday. About 45% were foreclosure and short sales.

The large number of these distressed property sales is driving prices lower. The median price for an existing home fell 15.5% last month to $165,400. Falling prices depress demand, contributing to the high inventory that is a factor keeping prices down. Inventories of previously owned homes rose 5.2% at the end of February to 3.8 million available for sale, which represented a supply of 9.7 months at the current sales pace.

“As long as inventories stay very high and a high proportion of sales are distressed, prices will continue to decline,” Insight Economics analyst Steven Wood said. “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.”

The February resales level of 4.72 million reported Monday by NAR was above Wall Street expectations of a 4.48 million sales rate for previously owned homes. The 5.1% increase was the largest since 5.6% in July 2003.

“This is a rebound from January,” said NAR economist Lawrence Yun. “Home sales are still very soft.” Mr. Yun added that realtors hope the Obama administration’s enormous economic relief package stimulates the housing market in the next few months.

Freddie Mac data show the average 30-year mortgage rate was 5.13% in February, up from a record low 5.05% in January but below a rate of 5.92% in February 2008. Lower lending rates, though, can’t change the facts: Credit is tight and layoffs have been rising. Since the recession began in December 2007, the economy has shed 4.4 million jobs, including 651,000 jobs last month. Previously owned home sales, year over year, were down 4.6% from the pace in February 2008, Monday’s report said.

February sales rose 15.6% from a month earlier in the Northeast, 1% in the Midwest, 6.1% in the South and 2.6% in the West.

The report on the 5.1% jump in existing sales across the nation comes about a week after the government said home construction rose for the first time in eight months during February, up 22.2%. Some analysts say the sector might not worsen, considering government efforts to aid the economy.

“The improvement in housing sales and starts seem to indicate the market may finally be finding a bottom,” said Joel Naroff, president of Naroff Economic Advisors. “I expect sales to start picking up over the next few months. The markets should like this and should react positively to the actions being taken to try to free up lending.”