Sales of homes in the US fell more sharply than expected in February, following three straight months of gains, and prices dropped sharply as the combination of tight credit and growing inventory weighed on the market.

The National Association of Realtors said home resales fell 9.6 per cent in February to an adjusted annual rate of 4.88m from January’s revised 5.4m. That left sales 2.8 per cent lower year on year and missed Wall Street expectations of 5.15m. Prices were down 5.2 per cent from a year ago to a median price of $156,100, the lowest level since April 2002.

“The decline in existing home sales is a concern given the current weak state of the housing market. Negative price pressure combined with falling sales is certainly not good news for anyone hoping for a turnaround in the housing market,” said David Semmens, US economist at Standard Chartered.

Despite lower prices, “traditional” homebuyers were being discouraged from entering the market by tight credit conditions, said Lawrence Yun, NAR’s chief economist. “We’d be seeing greater numbers of traditional homebuyers if mortgage credit conditions return to normal.”

But he said the market was seeing a “gradual but uneven recovery”, with home sales 26.4 per cent higher than their cyclical low last July.

January’s blizzards might also have weighed on sales, as homes sold in February were under contract in January, said Ian Shepherdson, chief US economist at High Frequency Economics. “The severe weather in January depressed the pace of contract signings, as shown clearly by the drop in the pending sales index. The existing home sales numbers today are in line with pending sales, so the big question, then, is what happens over the next few months, once the weather distortions fade.”

All-cash sales hit a record 33 per cent in February, and sales of repossessed homes rose to 39 per cent of total sales from 37 per cent in January.

The number of homes on the market continued to rise, gaining 3.5 per cent to 3.49m available homes. At this pace of sales, it would take 8.6 months to clear that inventory, up from 7.5 months in January, and well above the six months economists say is average in a healthy market.

Sales fell in all regions, with the Midwest seeing the sharpest monthly decline at 12.3 per cent. Prices fell most in the north-east, where the median price was 9.5 per cent lower than in February 2010.

Last week, commerce department data showed home construction slumped 22.5 per cent in February, the biggest drop since 1984, while a National Association of Homebuilders’ survey showed builder sentiment remains well below healthy levels.

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