NEW YORK (TheStreet) -- The unexpected fall in existing home sales in March sparked immediate worries of a slowdown in the housing market that has helped buoy the U.S.'s slow and steady economic recovery.
However, the National Association of Realtors reported Monday that inventory constraints compounded by "excessively tight" underwriting standards were the main culprits behind the declines in purchases. Inventories ticked up at the end of March to 4.7-months of supplies but remained 16.8% below a year ago when there were 6.2-months of supplies, helping to push up national median existing-home prices for all housing types by 11.8% to $184,300 in March -- the strongest increase since November 2005.
The inventory declines also occurred as "buyers buy things faster," Andrew Wilkinson, the New York City-based chief economic strategist at Miller Tabak & Co. said in a phone interview. The median time on the market for all homes was 62 days in March, down from 74 days in February and was 32% below 91 days in March 2012. The inventory tightness may have also had to do with cheaper houses having already been bought, said Wilkinson.
Distressed homes -- foreclosures and short sales -- accounted for 21% of March sales, down from 25% in February. First-time buyers were unchanged from February while all-cash sales fell to 30% of transactions in March from 32% in February. Individual investors bought 19% of homes in March, down from 22% in February.
"Conditions continue to broadly favor sellers," Lawrence Yun, the NAR's chief economist said in a statement.
Wilkinson said the weaker-than-expected housing number does not fit with rising mortgage purchase applications and could signal that the market is suffering from a lack of credit-worthy buyers. An index of mortgage purchase applications during March ran at a pace 5.5% higher than seen during February, averaging 205.6 through in the four weeks ending March 29. And in a sign of a spring pick-up in activity, the first two weeks of April produced an average reading for the index of 213.8.
"If lenders aren't willing to lower the bar, then things could run out of steam," he said. Underwriters now expect credit scores over 710, 720 or higher, much higher than the bar set during the housing boom of the 2000s that peaked in 2006.
The economic strategist said the housing recovery remains robust and the existing home sales trajectory remains up and are near their highest level in five years. Other indications such as the amount of lumber purchases to build new homes continue to track higher.
Sales of previously owned homes fell Monday to 4.92 million annual units from 4.95 million in February, according to the National Association of Realtors. Economists in a Thomson Reuters poll predicted a rise to 5.01 million annualized units.
"We would view any pullback in the housing market and housing-related equities as a buying opportunity," said John Canally, investment strategist and economist at the Boston office of LPL Financial, which is the nation's largest independent broker-dealer. "We think we're in the early innings of a fairly long housing recovery driven by fundamentals. Prices are low, interest rates are low, there's a lot of pent-up demand, so we're kind of viewing these kind of blips in in homebuilder equities as buying opportunities."
Homebuilder equities, which weakened after the existing home sales report, were building steam in afternoon trading. D.R. Horton
-- Written by Andrea Tse in New York
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