A combination of lower home prices, better gas prices, and a stock market at all-time highs may have spurred home buyers into action in February, a month which clocked the best showing in terms of monthly sales gains for existing home sales since rising the same amount in March 2004, according to the National Association of Realtors.

Existing-home sales, including single-family, townhomes, condominiums and co-ops, rose 3.9 percent in February to a seasonally adjusted annual rate of 6.69 million units, from a downwardly revised level of 6.44 million in January. That's just 3.6 percent below the 6.94 million-unit pace in February 2006. Last month’s increase was the biggest monthly rise in three years -- sales also rose 3.9 percent in March 2004.

Are such gains likely to continue? Consider the tailwinds lifting housing.

• Contained in the NAR's report was the fact that the median price of homes fell 1.3 percent for the seventh straight month to $212,800 from a year earlier when the median price was $215,700.

• Inventories rose 5.9 percent at the end of February to 3.75 million existing homes available for sale, which represents a 6.7-month supply at the current sales pace compared with a 6.6-month supply in January. Housing supplies topped at 7.4 months in October, and have been slowly dwindling ... until February.

David Lereah, NAR’s chief economist, said the strong gain is a bit of a surprise. "Some of the rise in home sales may be from mild weather that brought out shoppers in December, but fundamentals have improved in the housing market and buyers see a window now with historically-low mortgage interest rates and competitive pricing by sellers," he said. "Even so, winter storms last month discouraged shopping, and buyers were chilled with the third coldest February on record. These unusual weather patterns mean home sales that close in March may decline before rebounding later this spring."

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.16 percent in the last week, down from an average of 6.29 percent in February. The 30-year fixed was 6.22 percent in January, and 6.25 percent in February 2006.

Buyers may have felt at the time that mortgage rates and prices wouldn't improve much more.

Explains NAR President Pat Vredevoogd Combs, the median home price currently is distorted. Other indices examining sales of the same properties over time, such as the OFHEO House Price Index, have been showing price gains; however, the OFHEO index is limited to conventional financing, she says. 

New home sales have also shown minor gains in price, in contrast to existing home sales for the past few months.

"Over the last year, we’ve seen declining sales in many high-cost areas but rising activity in lower cost markets," says Combs. "This change in the geographic composition of sales means we aren’t getting apples-to-apples comparisons in median home prices from a year ago."

"What’s really happening is probably somewhere in between the different measures, but home prices are soft -- a year ago we were still seeing bidding pressures and double-digit price growth," she continues. "Overall, home prices should rise slowly this year, and many buyers have an opportunity now that was only a dream during the five-year boom."

Single-family home sales increased 3.7 percent to a seasonally adjusted annual rate of 5.88 million in February from 5.67 million in January, but are 3.4 percent below the 6.09 million-unit pace in February 2006. The median existing single-family home price was $211,100 in February, down 1.5 percent from a year ago.

Existing condominium and co-op sales jumped 5.3 percent to a seasonally adjusted annual rate of 810,000 units in February from a level of 769,000 in January, but are 5.2 percent below the 854,000-unit pace in February 2006. The median existing condo price was $225,400 in February, up 0.5 percent from a year earlier.

In related news, the California Association of Realtors announced that while sales decreased 9.6 percent in February, median price of a home in California at $564,7000, up 5.7 percent from year ago levels.

"Sales in February were at their highest level in eight months, posting their smallest year-to-year decline in 14 months," said C.A.R. President Colleen Badagliacco. "Next month’s report could tell a different story since sales last year peaked in March. Looking forward, we are likely to see smaller year-to-year declines as we enter the traditional buying season. Homes that are well maintained and are priced to reflect the realities of today’s market will continue to sell."

The rally may be short-lived, and than again, maybe not.

These figures for closed sales were taken before the subprime lending meltdown occurred in March, which many fear will spill over to the prime market causing lending standards to tighten across all credit scores. That and bad weather in February could cool March's housing figures even more.

But it's unlikely homebuyers will be able to resist interest rates dropping another half a point, while home prices are also dropping. Also, the see-sawing stock market could be reminding home buyers of the volatility of investments. At least in a home, they won't feel the rocking motion of prices.