U.S. home sales fell in February, but upward revisions to the prior month's pace and the first yearly increase in prices in 15 months suggested the housing market recovery remained on track.
The National Association of Realtors said on Wednesday existing home sales slipped 0.9 percent to an annual rate of 4.59 million units last month.
Still, last month's sales pace was the second highest since May 2010, helping to blunt the sting from the report.
Some economists said smoothing out the data to account for the extra day in February could have contributed to the surprise drop in sales last month. Economists polled by Reuters had expected sales to rise to a 4.62 million pace.
We compared the February 2012 seasonal adjustment factor to past leap years and it appears that the seasonal adjustment was fairly aggressive, said Ellen Zentner, an economist at Nomura Securities in New York.
Using last year's seasonal adjustment factor instead of this leap year's, existing home sales would have actually risen by 3.0 percent month on month to 4.77 million units.
Stocks on Wall Street edged lower on the data. Prices for U.S. Treasury debt rose on bargain hunting and the dollar edged up against a basket of currencies.
The report still added to signs of a tentative recovery in the housing market, with the median home price rising 0.3 percent from a year ago to $156,600 - the first yearly increase since November 2010.
SALES TRENDING HIGHER
Since bottoming around a 4.05 million-unit pace in July, home resales have largely held up. Compared with February last year, sales were up 8.8 percent and according to JPMorgan economist Daniel Silver, the gains were tracking a seasonally adjusted annualized rate of 30 percent so far this quarter.
The unusually mild winter may have helped boost existing home sales in recent months, but we do not think this is the only factor driving up sales, said Silver.
The upward trend in the data began before the abnormal weather started, and we do not see a statistically significant relationship between deviations from normal temperatures and existing home sales during winter months.
Sales last month were mixed, declining sharply in the Northeast and West. Sales were up in the Midwest and South. Data on Tuesday showed permits to build homes rose to a near 3-1/2 year high in February. The sector, which is a major hurdle to faster economic growth, is most likely getting a lift from an acceleration in the pace of job creation.
However, the housing market continues to be choked by a glut of unsold properties, which are weighing down prices.
Last month, the inventory of unsold homes on the market increased 4.3 percent to 2.43 million units - representing 6.4 months' supply, up from 6.0 months in January. This number was not adjusted for seasonal fluctuations.
When adjusted for these variations, the months' supply edged down to 6.5 months' worth from 6.6 months in January. A supply of six months generally is considered ideal, with higher readings pointing to price declines.
While inventories are still well below their 4.04 million units peak in July 2007, the challenges for the housing market are many.
Last month, about 33 percent of pending contracts were canceled. Distressed properties, foreclosures and short sales, which typically occur at deep discounts, made up a third of overall sales last month.
A critical question is whether sales are set to take off soon, given the improving economy, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.
Our view is that sales will continue to improve, but unless credit conditions loosen significantly, a takeoff will not take place.
Other data on Wednesday showed demand for home loans fell last week as mortgage rates surged. Fixed 30-year mortgage rates increased 13 basis points to average 4.19 percent last week from 4.06 percent.
Investors bought 23 percent of homes last month, with first-time buyers accounting for about third of the transactions.
(Editing by Andrea Ricci)