Remember in March and early April, when everyone was cheering the strong sales of existing homes during the month of February? Perhaps we were finally turning the corner, right?

The National Association of Realtors’ index for pending sales of existing homes rose in February at a seasonally adjusted annual rate of 0.7 percent. The index is well below where it was a year ago but stronger than investors expected, reassuring them that the housing sector, while weak, is not being pummeled by the struggling subprime mortgage sector.

Some folks thought the market had done a 180. But it now appears to be little more than a stutter-step. The market juked the perma-bulls right out of their cleats on this one!

Sales of existing homes plunged in March by the largest amount in nearly two decades, reflecting bad weather and increasing problems in the subprime mortgage market, a real estate trade group reported Tuesday. The National Association of Realtors reported that sales of existing homes fell by 8.4 percent in March, compared to February. It was the biggest one-month decline since a 12.6 percent drop in January 1989, another period of recession conditions in housing. The drop left sales in March at a seasonally adjusted annual rate of 6.12 million units, the slowest pace since June 2003. The steep sales decline was accompanied by an eighth straight fall in median home prices, the longest such period of falling prices on record. The median price fell to $217,000, a drop of 0.3 percent from the price a year ago. The fall in sales in March was bigger than had been expected and it dashed hopes that housing was beginning to mount a recovery after last yearâ€™s big slump. That slowdown occurred after five years in which sales of both existing and new homes had set records.

Everyone said, as they always do in a major asset bubble market, that “this one is different”. And it some senses, they’re right, real estate is different. But different doesn’t preclude a crash. If you hold $500K in a technology stock, and you need to liquidate as it’s dropping like a rock, you might sell for $300K in a day just to get rid of it, because you know it will be worthless tomorrow. If you own a $500K home, though, you can’t get rid of it in a day, you’re in debt to pay for it, and unlike the technology stock, it will never be completely worthless. But that doesn’t mean that the market can’t reprice it at $300K and screw you.

Oh, and despite what they said last month, it now appears that they see the error of their ways:

Lereah said that the troubles in mortgage lending were also playing a significant part in depressing sales. Lenders have tightened standards with the rising delinquencies in mortgages especially in the subprime market, where borrowers with weak credit histories obtained their loans.

This has been brewing for a long time, and it doesn’t take a rocket surgeon to have seen it coming. You flood the market with liquidity, loosen interest rates and lending standards, and you create an asset bubble. It had to burst or deflate. With housing, it’s tough to burst, because there is inherent value, but it’s starting to deflate quite rapidly now.

Hat Tip: Doug