Sales of previously owned U.S. homes fell slightly in February, according to a trade group report on Tuesday that underscored the fragile nature of the housing market's recovery.
The National Association of Realtors said sales fell 0.6 percent month-over-month to an annual rate of 5.02 million units, the third straight month of declines in sales. January's sales were unrevised at 5.05 million units.
Analysts polled by Reuters had expected February sales to drop to a 5 million-unit pace.
Compared to February last year, home sales were 7.0 percent higher.
"Our view is that housing is bottoming and beginning a slow improvement, but we're going to bounce along the bottom for a while," said Henry Smith, chief investment officer at Haverford Trust Co. in Philadelphia.
U.S. stock indexes edged higher after the data, while Treasury debt prices were little changed. The U.S. dollar fell against the euro.
Home sales surged on the back of a $8,000 tax credit for first-time buyers, but have faltered in recent months, raising worries of a relapse in a sector that was the main trigger of the worst U.S. recession since the 1930s.
Even though the popular tax credit has been extended and expanded, sales have stayed subdued and hopes of a bounce back before the April deadline are fading.
Prospective buyers have to sign contracts before April and close them by June to benefit from the tax rebate.
NAR's chief economist Lawrence Yun said the trade group was hoping for a surge in sales in the coming months.
"The key test for a durable recovery comes in the next few months as the credit deadline approaches," he said. "If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure broad home price stabilization."
The inventory of existing homes for sale in February rose 9.5 percent to 3.59 million units from the previous month, NAR said. At February's weak sales pace, that represented 8.6 months' worth of supply—the highest since August.
The national median home price fell 1.8 percent from February last year to $165,100.
The decline in February sales was concentrated in the single-family homes segment — the biggest portion the market — which fell 1.4 percent to an annual rate of 4.37 million units. Condominium and co-ops rose 4.8 percent to a 650,000-unit rate.
With the Federal Reserve's purchases of mortgage-related securities scheduled to end next Wednesday, concern is mounting that home loan rates could rise and arrest the housing market's recovery from a three-year slump. There is also a looming threat from a wave of foreclosure properties hitting the market.
Foreclosed properties typically sell well below their value. In February, distressed transactions accounted for 35 percent of sales and continued to weigh on house prices, the NAR said. First-time buyers made up 42 percent of sales, with cash purchases accounting for 26 percent.
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