Existing home sales fell back in February, following three months of very strong growth. The National Association of Realtors (NAR) reported a 9.8% decrease in existing home sales in February to a seasonally adjusted annual rate of 4.88 million units. This follows a total gain of over 23% over the previous three months.

The decline in February was not unexpected given the recent strong growth that was out of sync with other housing market indicators. It was also predicted by the pending homes sales index, which fell 5% in January.

 There has been increased scrutiny of the existing home sales data in recent months, with the NAR’s data showing much stronger gains than other comparable data, such as the pending home sales index and the Mortgage Bankers Association’s mortgage applications purchase index. NAR is currently investigating new benchmarking procedures with an anticipated release in summer 2011 that will reduce observed discrepencies.

The decrease in February was consistent across the sectors and regions.  Single family home sales were down 9.6% to 4.25 million, while condominium and coop sales declined 10.0% to 630 thousand. Regionally, home sales fell 12.2% in the Midwest, 10.2% in the South, 8% in the West and 7.2% in the Northeast.

The housing inventory was up 3.5% to 3.49 million existing homes for sale. At the current sales level, this represents an 8.6-month supply, up from a 7.5-month supply in January.

The parallel NAR practitioner survey indicates that the share of distressed homes – sold at a discount – continued to rise, up to a 39% in February from 37% in January 2011 and 33% in November 2010. The practitioner survey also indicated that investors’ share of home sales, which had been rising steadily in recent months, dropped back in February, down to 19% from 23% in January 2011. Increasing caution by investors is likely to have played a significant part in February’s decline.

Despite decreasing sales to investors, the share of all cash transactions continued to rise in February, up to 33%, from 32% of home sales in January and 29% in December.  All cash purchases are primarily of distressed homes sold at a discount. The NAR notes that, “The decline in price corresponds to the record level of all-cash purchases where buyers …… are snapping up homes at bargain prices.”