NEW YORK (Reuters) - Early signs of a decent spring selling season in the U.S. housing market, as mortgage rates hit near-record lows, have been snuffed out by the latest round of dismal data.
Sales of existing homes sank in March and the February increase was revised lower, suggesting no imminent bottom for housing or the 16-month economic recession.
Housing affordability does keep improving and is at all-time highs by some measures. This usually would bode well for the keenly watched spring home sales season, when potential buyers emerge from winter hibernation to shop in earnest.
But not this time.
"It's very difficult to predict whether this is the start of the upturn in the market. In fact, it's likely not," said Sherry Chris, president and chief executive officer of Better Homes and Gardens Real Estate in Parsippany, New Jersey.
Mortgage rates skidded to record lows in April. Home prices have tumbled by about 30 percent from the mid-2006 peak, sinking more or less depending on the region.
But unemployment at its highest in over a quarter century and rising. Home prices are still falling. Foreclosures are at record highs and mounting. Consumer confidence is sapped.
"As consumers become more confident about the economy, about their own jobs and net worth, that will start driving us out of this," said Chris.
Roughly half of all existing homes sold in March were foreclosures, and a similar share of buyers were first-time homeowners. Consumers buying for the first time are seen key to a recovery, as they aren't burdened with a house to unload.
A federal first-time buyer's tax credit of up to $8,000 and deep discounts are luring those buyers as well as investors.
But with many home shoppers wary of getting a pink slip, the hardest-hit housing market since the Great Depression is seen unlikely to soon gain much traction.
In reporting record and rising foreclosure activity, RealtyTrac on Wednesday said new problem cities will emerge as unemployment swells.
The Sun Belt states of California, Florida, Nevada and Arizona still that benefited most during the five-year housing boom early this decade continue to suffer the biggest bust.
But markets like Manhattan and surrounding New York suburbs, long insulated from the downturn, are losing ground as Wall Street cuts staff.
"When we look at states like Michigan with the auto problems there, that state has been a poor performing real estate state for a long time," said Chris. "If problems arise with unemployment there, that will certainly effect the housing market. There's question about that."
Once stability does return and home prices start to rise, the next shoe will drop.
Shadow inventory -- created when disillusioned sellers gain confidence and come out of the woodwork to list their homes again -- will quickly resurface when the market starts to show signs of improvement.
More supply will pressure home prices anew.
"We remain nervous, however, that any meaningful increase in home sales will prompt a new wave of supply as people who have simply not bothered to try to sell their homes are persuaded that it is finally worth a shot," wrote Ian Shepherdson, chief economist at High Frequency Economics in Valhalla, New York.
At the current sales pace it would take 9.8 months to sell the supply of unsold existing homes, according to the National Association of Realtors. That is about double the level that suggests a more normal supply and demand balance.
"Once things start to move, there's going to be incentive for more supply to come onto the market as well as the fact that foreclosures are still going up," said Keith Hembre, chief economist at First American Funds in Minneapolis, Minnesota.
Hembre roughly estimated more than one million additional housing units could come back on the market once moving rates pick up again. This extra inventory is "going to be a huge issue ... it would certainly cap any upside on prices."
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