Existing Home Sales Increase 5.1%

In a sea of bad news, here's a bit of good news - existing home sales were up in February 5.1% to 4.72 million units.

A real estate group says sales of existing homes rose from January to February in an unexpected boost for the slumping U.S housing market as buyers took advantage of deep discounts on foreclosures.

The National Association of Realtors said Monday that sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January. It was the largest sales jump since July 2003.

Sales had been expected to fall to an annual pace of 4.45 million units, according to Thomson Reuters.

But the Realtors still described the sales level as "relatively soft."

Lawrence Yun, chief economist for the trade group, said first-time buyers accounted for half of all home sales last month, with activity concentrated in lower price ranges.

Why did the sales increase? Foreclosures brought out the bargain hunters. People who are first-time buyers are taking advantage of the lower prices to buy affordable housing, which isn't an artificial construct imposed by the government.

Foreclosures made the homes more affordable and people made the smart decision to pick up the bargains at foreclosure sales rather than allow the government to artificially boost home prices through its homeowner bailout program. As I've repeatedly stated on this blog, the real estate market can fix its own problem through the foreclosure system - allowing prices to reset at more affordable levels, which will get buyers to come out once again. Sellers who bought for the short term and those who are underwater aren't going to like the new more affordable prices since their own investments may have lost money, but it is the healthy correction that the real estate markets had needed for years.

The current low interest rates will continue to spur sales and refinancing, and that will boost the sales as well, although the limiting factor will be the ability of the banks to actually handle the demand to originate new loans and refinancing while balancing the need to have good credit risks among the borrowers. Congress continues to demand that subprimes get loans and in sufficient numbers despite their role in causing the toxic paper meltdown.