by Luke Mullins

After falling sharply in previous months, sales of existing homes stabilized in February as the market prepared for the much-anticipated spring home-buying season. Existing-home sales in February declined by less than 1 percent from January, roughly in line with economists' expectations. February's reading was significantly better than January's 7 percent monthly slide and December's 16 percent plunge. And last month's sales were 7 percent above year-earlier levels. "We think sales are now close to bottom," Ian Shepherdson, the chief U.S. economist for High Frequency Economics, said in a report.

Existing home sales have fallen 23 percent since peaking in November, according to IHS Global Insight. The sharp decline is linked to the original expiration of the popular first-time home buyer tax credit. Under the original terms of the program, qualified first-time home buyers were eligible for up to $8,000 in tax breaks as long as they closed their transaction by the end of November. Since buyers scrambled to take advantage of the tax break, the incentive juiced home sales in November at the expense of subsequent months. "Sales surged in October/November as buyers moved up their purchases," Brian Wesbury, chief economist at First Trust Portfolios, said in a report. "After November, a 'hangover' set in."

Existing-home sales may have also been depressed by the recent nasty weather, David Resler, chief economist at Nomura Securities, said in a report. "Though sales were up in the Northeast and Midwest, the unusually severe winter storms that hit the Eastern states in late January through mid-February may have taken a heavier toll on sales in the South (-1.1 percent), where the winter is less often a factor," Resler said. "Similarly, the torrential rains that hit the Western states ahead of those Eastern storms may have cut into sales (-4.7 percent) in the West."

While unfavorable weather conditions may make buyers less excited about house hunting, it won't necessarily deter sellers from putting out the for-sale signs, Resler says. The tally of unsold homes rose by nearly 10 percent from January, while the unsold inventory increased modestly, to 8.6 months worth of sales from 7.8 months.

Some housing market observers expect sales to move higher from here. That's because President Obama in November extended and expanded the first-time home buyer tax credit to include even current homeowners who close their purchase by the end of June. "We expect existing-home sales to rise in March and April; however, these gains will fall short of the 6.5 million peak in November '09, since the first round of tax credits pulled forward sales that would have otherwise occurred in subsequent months," Jared Franz, an associate economist at T. Rowe Price, said in a report. But while the extended credit may boost sales in the coming months, it's also likely to create another "hangover" after it expires this summer.

For his part, Weiss Research analyst Mike Larson says the housing market's positive and negative forces will fight each other to a draw through the rest of the year. He expects sales and prices to remain essentially flat. And while he foresees improvements taking hold next year, the strength of the recovery remains unclear. "Depending on the economy's performance, 2011 could be yet another snoozer," Larson said in a report. "That's better than the free fall from 2005-2009 but nothing like the vigorous recoveries we've seen after previous housing market downturns."

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Home Sales Flat Before Spring Buying Season | Luke Mullins