Plunge in U.S. home sales signals more weakness ahead

National Association of Realtors data released on Monday showed U.S. existing home sales plunged 7.1 percent to an annual rate of 5.08 million units in Feb, widely missing expectations for a a fall of 2.8%. February’s decline followed a strong two months of gains.

The number of unsold homes rose by 60k to 1.88m units. The ratio of unsold to sold homes (inventories in months) rose to 4.4 (months), below its long-term average. A six-month supply is viewed as a healthy balance between supply and demand.

Data was weaker than expected, but it is to be noted that in the recent months sales have been volatile and prone to big swings up and down following the introduction in October of new mortgage regulations.

Markets perceived the plunge as a potentially troubling sign for America's economy which has otherwise looked resilient to the global economic slowdown. The decline weighed on investor sentiment, with the S&P 500 stock index falling after the data.

The housing report contradicts data showing strong job growth and a stabilization of factory output, which had taken a hit from weaker demand overseas and a strong U.S. dollar. It highlights ongoing rockiness in U.S. housing market which is struggling to find its footing.