Reuters gets to break out the “U” word, but not because bad news wasn’t expected.  Their economists just missed the mark in how bad it was going to be:

Sales of previously owned U.S. homes fell unexpectedly sharply in February and prices fell to their lowest in nearly nine years, an industry group said Monday.

The National Association of Realtors said sales fell 9.6 percent month over month to an annual rate of 4.88 million units, snapping three straight months of gains. The percentage decline was the largest since July.

Economists polled by Reuters had expected February sales to fall 4.0 percent to a 5.15 million-unit pace from the previously reported 5.36 million unit rate in January, which was revised slightly up to 5.40 million.

The New York Post notes that prices have now hit 2002 levels, and dropped all around the country:

The median price of homes sold fell 5.2 percent from last year to $156,100, the lowest since April 2002. Price retreated in all four major regions of the US.

Inventory rose even while prices fell.  The existing resale inventory now amounts to 3.49 million, or almost 9 months of sales at the current rate.  That will force prices even lower in the short term, and without an influx of qualified buyers, over the long term as well.

Prices needed to fall back to at least an inflation-adjusted level corresponding to the start of the bubble in 1998.  We’re getting close to that now.  The problem now is no longer irrational valuation, but  the high unemployment that keeps so many Americans from being able to enter the market.  Short-term fixes to housing woes might incentivize those who already have the money to buy, but if they have to sell to get into another home, they’re almost certain to stay put and try to ride out the valuation decline first rather than lose money in the transaction — assuming they can sell at all.

Until we start creating jobs, we should have no expectations that the housing markets will improve.  We can stow the “U” word accordingly.