The drop in U.S. existing home sales in March indicates that the housing market is far from a bottom, economists say.

Sales dropped more than forecast by 3.0% against a surprise 4.9% surge in February.

Dimitry Fleming, an economist at ING, said Thursday's report weakens any notion that the housing market is stabilizing.

"Prospects for an immediate recovery remain depressed as fears of surging unemployment and further price declines continue to push away buyers from the market," he said.

The U.S. labour market has been performing terribly with another weekly surge of over 600k initial jobless claims reported Thursday morning.

TD Securities economist Millan Mulraine called the gain in February home sales a "brief respite" for Americans, who face continued job losses and an ongoing housing market correction.

Both Fleming and Mulraine forecast that house prices and sales will continue falling through 2009.

On a more upbeat note, Capital Economics economist Paul Dales said the drop probably doesn't signal a downward trend. He said that even though around half the homes in the U.S. are being sold at distressed prices, at least inventory is being brought down.

"With the housing market having led the economy into the recession, it is no surprise that it might be the first sector to stabilize," he said.

By Megan Ainscow and edited by Sarah Sussman
©CEP News Ltd. 2009