Home sales took another deep dive in February, falling 7.1 percent below the 4.95 million-unit level in February 2013 to the lowest level of sales in any month since July 2012, when annualized sales stood at 4.59 million.  The size of the sudden decline suggests that there might be more than bad weather behind the bad news.

NAR chief economist Lawrence Yun blamed the weather and recently enacted QM rule, a regulation that was anticipated for six months before it took effect in January.

“We had ongoing unusual weather disruptions across much of the country last month, with the continuing frictions of constrained inventory, restrictive mortgage lending standards and housing affordability less favorable than a year ago,” he said. “Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”

However, some leading economists are reading more into the February sales numbers.  “The weakness in existing home sales has been going on for some time now and needs to be acknowledged, particularly by the Federal Reserve,” Diane Swonk, chief economist at Mesirow Financial in Chicago, told Reuters.

“The few hawks on the Fed could be quickly silenced if housing doesn’t turn around in a more definite and fundamental fashion soon.”

Robert Rosener, an economist at Credit Agricole CIB in New York, who correctly projected the drop in sales, told Bloomberg, “The weather played some role, but just as much of a role was played by lower inventories, higher mortgage rates, slightly higher prices and tighter credit.  We’re on a positive trajectory, and when the spring comes we should see a bounce back,” Rosener said.

Distressed homes – foreclosures and short sales – accounted for 16 percent of February sales, compared with 15 percent in January and 25 percent in February 2013.  Eleven percent of February sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 16 percent below market value in February, while short sales were discounted 11 percent.

Total housing inventory at the end of February rose 6.4 percent to 2.00 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 4.9 months in January. Unsold inventory is 5.3 percent above a year ago, when there was a 4.6-month supply.

The median time on market for all homes was 62 days in February, down from 67 days in January and 74 days on market in February 2013. Short sales were on the market for a median of 94 days in February, while foreclosures typically sold in 60 days and non-distressed homes took 61 days. Thirty-four percent of homes sold in February were on the market for less than a month.