In a sign that the fragile housing market is still searching for its footing, sales of existing homes fell slightly in February. The National Association of Retailers (NAR) said Tuesday, March 23, that sales of existing homes dropped 0.6% in February from January, to a seasonally adjusted annual rate of 5.02 million.

Buyers did not seem enticed by average national rates on 30-year mortgages that dipped to 4.99%, according to Freddie Mac, nor by the government’s tax credit for purchases of homes.

But widespread storms in February likely dampened sales, according to Lawrence Yun, NAR chief economist. “Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity,” he said in a statement.

Another disturbing bit of news was the large jump in housing inventory at the end of February, which rose 9.5% to 3.59 million existing homes, which represents a supply of 8.6 months, up from a 7.8-month supply in January.

According to Michael Alfstad, president and CEO of the advisory firm Alfstad Capital in Seattle, there was darker news buried in that particular set of numbers.

“The existing inventory increase was a bit misleading because that doesn’t track the shadow inventory, all the homes in foreclosure or owned by financial institutions, and that number continues to grow,” Alfstad said in an interview. “From a market participation standpoint, the housing numbers today have definitely turned a corner – they’re getting worse rather than getting better.”

For the NAR’s complete report on existing home sales please click here.

To read InvestmentAdvisor.com’s article on Ben Bernanke’s views of the housing bubble, please click here.