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Real Estate

Home Prices Edge Upward?

Sales of existing homes declined 3% in March, reversing February's surprising gain, the National Association of Realtors said on Apr. 23. But the market continues to show signs of stabilizing as first-time home buyers and investors jump in to scoop up bargains, analysts said.

Sales of distressed properties—foreclosed homes or homes in danger of foreclosure—made up about half of the transactions in March, according to a Realtor survey. And first-time home buyers, taking advantage of a new $8,000 tax credit, seem to be driving the market, the group said.

Sales of single-family homes, townhouses, condos, and co-ops dropped to a seasonally adjusted annual rate of 4.57 million units in March from a downwardly revised level of 4.71 million in February, and fell 7.1% compared to March 2008. However, sales of existing homes by comparison jumped an unexpected 4.9% in February.

Statistical Noise

Analysts attributed the month-to-month ups and downs to statistical noise. "This series can jump around month over month," said Paul Dales, a U.S. economist at Capital Economics in Toronto. "But there's nothing to suggest a renewed downward trend."

Another sign of hope: Even though prices have fallen 12.4% compared with a year earlier, they actually rose 4.2% in March compared with February, though the data are not adjusted for seasonal variations. Still, that increase is much higher than the historical March-over-February price increases, which average about 1.8%, the NAR's spokesman Walter Maloney said. Prices also rose in February, but not more than they have historically risen in that time period.

While most other indicators suggest that prices continue to decline, the Federal Housing Finance Agency showed a monthly increase of 0.7% in March and 1% in January, and those numbers are seasonally adjusted.

The California Association of Realtors told BusinessWeek on Apr. 23 that the state's median sales price in March could indeed show a slight increase for the first time since August, 2007, when the group releases its March report on Apr. 27. Prices have been leveling off in California since January and might show a tiny increase in March over the February median of $247,590, said Robert Kleinhenz, deputy chief economist for the California Association of Realtors.

Caution Signs

A handful counties, including Orange County, which saw an increase in prices in February, could again see increases in March, he said. But Kleinhenz was cautious about calling a bottom. Price declines might have been tempered temporarily by a new state law that went into effect in September requiring lenders to wait 30 days before filing foreclosure notices, he said. And rising unemployment also could drag prices lower.

"We're wondering why all of a sudden we're starting to see the statewide median leveling out," Kleinhenz said. "And we're asking whether it will be sustained and we will be able to call the bottom—or will the continuing wave of defaults over the next months, coupled with the pain in the general economy, weigh down on home prices?"

Capital Economics—Dales made his own calculation adjusting for seasonal factors in the Realtors—national data and found that home prices rose 2% in March, compared with February, and increased 2.1% in February, compared with the previous month. But he emphasized that his calculation should be treated with caution because "it does not take into account the type, size, or quality of the home sold" in each given month.

West Coast surge

Patrick Newport, an economist at IHS Global Insight in Lexington, Mass., found that the single-family home median price on the West Coast increased even more significantly in March based on his own seasonal adjustment, but he expressed similar caution. Both Dales and Newport said a home price recovery is probably quite far off.

The inventory of unsold homes remains steady at about 10 months. The inventory at the end of March fell 1.6%, to 3.74 million existing homes available for sale, representing a 9.8-month supply at the current sales pace (up slightly from a 9.7-month supply in February).

"Our gut feeling is that we don't think prices will start increasing on a more sustained basis for some time," Dales said. "There are too many properties on the market and not enough demand."

Click here to see which Zip Codes posted the biggest listing-price gains.

Gopal writes about real estate for BusinessWeek in New York.

Gopal is a reporter for Bloomberg News in Boston.

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