The New Homes sales numbers for February were released today and attention was broadly paid to a surprising uptick and more narrowly paid to the continuing diminished levels of new home sales and starts.
The attention is natural, since investment in new home and other residential construction had declined from $770 billion in 2005 to a run rate of less than $450 billion currently.
One of the most striking charts presented in various places today looked at 
the level of new home sales by quarters over that past 40 years. The decline from the 2005 peak is unprecedented and easily obscures the slight uptick in February.
At the center of all the commentary is the question of whether or not a bottom has been reached in the housing market. Remember that we are talking about two different kinds of bottoms, and that reaching the bottom doesn’t necessarily mean that the housing market is going to rebound soundly.
One bottom is in terms of unit sales. Has the velocity of transactions in the housing market reached a low point, the foundation from which the market will begin to work back up? The second bottom is in terms of price. How much more price decline is embedded in the weakness of the market?
The Wall Street Journal collected the reactions of several economists to the recent housing numbers. Omair Sharif of RBS Greenwich Capital expressed a general consensus.
Overall, this report is better than we had anticipated, continuing a pattern of the February housing data exceeding expectations (recall that existing home sales bounced by 5% and housing starts climbed by 22%). To be sure, the improved data last month followed months of horrendous housing data, as activity fell off of a cliff following last fall’s financial upheaval. The pickup in February also came on the heels of an especially weak January performance, suggesting that the January-February swing may have reflected in part a weather effect. Still, the fact that starts, permits, and home sales rebounded in February despite still-challenging economic conditions suggests that, at the very least, the pace of decline in housing demand may be abating. It is clearly far too early to call a bottom in the housing market, especially given the deterioration in the labor market, but the February data have allayed some fears that the housing market would continue to freefall.
Reporting the new home and existing home sales separately may help differentiate two different industries, but does not give a complete picture of how consumers are interacting with the home sales market. After all, consumers are looking for a home and considering all available inventory, with preferences toward new or existing homes.
Although incomplete, a snapshot in time — February for each of the past three years — gives us a sense of how the market is performing. 
As you can see in the accompanying chart, the sales decline over the past three years has been pretty consistent: down 32.5% from 455,000 new and existing homes sold in February 2007 to 307,000 homes sold in February 2009.
Inventory has behaved somewhat differently: after increasing nearly 5% between February 2007 and 2008, it declined 8.2% versus prior year levels in February 2009.
The problem with such a snapshot is that doesn’t smooth out the variations that could affect the trend, such as weather from year to year. The benefit of such a snapshot is that it gives you a feel for what kind of market the consumer is experiencing as the Spring selling season begins.
Today’s consumer is seeing that few transactions are happening, a trend that can cause a buyer to doubt their own judgment. But, buyers are also hearing that inventories are beginning to work off, albeit slowly. The effect is that they can be concerned that the best properties, with the best deals, may be going away.
The numbers tell a story that can begin to bring some energy back into the home buying market. We’re not talking about a rebound type of energy. But we are talking about a sustained type of energy that will give all the professionals around real estate a feeling like the tides are beginning to turn.
