U.S. Markets open in 6 hrs 18 mins

Home Sales Drop, Price Gains Cool On Winter, Rates

The housing market clung to a tenuous recovery in the face of multiple head winds, but may be poised for stronger growth, fresh data released Tuesday suggested.

Existing-home prices rose 0.8% in January, according to the S&P/Case-Shiller's 20-city index. Unadjusted prices fell slightly for a third straight month. Year-over-year, gains cooled modestly to a still-solid 13.2%.

Separately, February new-home sales fell 3.3% to an annualized 440,000 from January's downwardly revised 455,000, the Commerce Department said. That's the lowest since September but well above the monthly average of 431,000 in 2013.

"The underlying trend is relatively good," said Scott Brown, chief economist with Raymond James. "New-home sales are normally pretty volatile even when weather isn't a factor. I take it with a grain of salt and anticipate a rebound in the spring.

Weather is just one of several hurdles housing has faced recently. Interest rates skyrocketed last summer after the Federal Reserve suggested it may begin tapering bond buys, and that combined with higher home prices and still-tight mortgage credit may keep homeownership out of reach for many people. Consumer confidence data out Tuesday from the Conference Board touched a 6-year high, but fewer people said they planned to buy a home in March than in February and in most of 2013.

That hesitation is likely due to rate concerns, said Russell Price, senior economist for Ameriprise Financial. Yet he thinks that once the spring buying season kicks into high gear, the specter of higher rates and the expectation of rising prices may motivate prospective buyers.

"Look to the spring to tell the tale of the housing sector," Brown said. Housing and the overall economy lost some steam in the winter, he said. "The next couple of months are going to be critical.

Builders may be key to getting some of that mojo back. The Na tional Association of Home Builders' sentiment gauge plunged into contraction territory in February and stayed there in March. Builders continue to cite multiple constraints, from a shortage of labor to a slower supply chain.

"This was never going to be a quick recovery," Brown said. "It could be many, many years before we get back to normal.

In a research note, IHS Global Insight economists noted that homebuilders have had to contend with construction prices that accelerated every month.

"However, the price of lumber has been retreating in year-on-year terms, which should give builders the wiggle room they need to raise wages," the economists noted.

Tight inventory is dampening the market by driving prices to unsustainably high gains. Price thinks housing will return to normal once appreciation settles around 5%. All the pieces are in place for builders to start supplying more inventory, he added.

Pre-downturn supply has been absorbed and builders are below the sustainable rate based on normal demographic trends.

"There's a lot of upside for new construction," he said.

Homebuilder stocks, hard hit in recent weeks, mostly fell modestly Tuesday, including Lennar (LEN) and KB Home (KBH).