GOOD MORNING. Stocks in Asia closed mixed today, European shares are up, and U.S. futures are pointing to a higher open.

In the U.S., stock market performance will be closely pegged to today’s announcement of existing home sales figures for the month of February, which dropped slightly to 5.02 million units, down from 5.05 million existing home sales in January, according to the National Association of Realtors. It marks the third consecutive monthly drop. Analysts expected a bigger drop to five million.

This news coincides with an 8.5% decline in mortgage loan application volume for the week ending February 19 compared to the previous week, according to Mortgage Bankers Association, which conducts a weekly mortgage application survey. Both indicators suggest that consumers are still widely reluctant or unable to take on deep debt and lock up a significant amount of their savings.

On average, existing home sales represent 70% to 80% of total housing sales – and are thereby a crucial indicator of where the housing market is heading, says Beth Ann Bovino, senior economist at Standard & Poor’s. The drop is due in part to factors like the month’s bad weather and that winter tends to be a slower time for home sales, she says.

But there are also larger issues at play – namely tight credit standards, increasing foreclosures and a high unemployment. If foreclosure hemorrhaging doesn’t stop–and the unemployment rate doesn’t drop substantially–a full housing recovery (and by that token, a full economic recovery) is unlikely to happen, says Bovino.

Instead, investors are likely to see the housing market in a stasis without wild swings in or out of its favor. “We’re in a home-base area for housing sales,” says Mike Larson, a real estate analyst at Weiss Research, an investment research firm. “We’re not deteriorating very much any more, but I don’t think we’ll see some big resurgence [soon].” At best, he says investors can anticipate a small gradual improvement from now until early 2011 with a full housing recovery happening around then at the earliest.

The decline in existing home sales also suggests that elements that artificially prop up the housing market – like the homebuyer tax credit – could be starting to lose steam. While an uptick in sales is expected for March and April as homebuyers try to take advantage of the last remaining weeks of the credit, the same demand that occurred before the credit was extended beyond November isn’t expected. “We don’t think the first-time homebuyer tax credit will have the impact that it did the first time around [when it] was very successful at bringing the buyers out,” says Bovino. “Now with the extension of it, the low hanging fruit – the demand – that was there has been picked.”

IN OTHER NEWS:

  • On Monday, the Senate Banking Committee voted to send the full bill for financial regulatory overhaul to the Senate. LINK
  • Google (GOOG) announced its decision to redirect online traffic from its mainland China-based search engine to Hong Kong-based google.com.hk where users can access uncensored results. LINK
  • Goldman Sachs (GS), J.P. Morgan Chase (JPM) and Morgan Stanley (MS)–along with more than 400 other firms that received a government bailout–will have their executive compensation reviewed by Kenneth Feinberg, the U.S. pay czar. Feinberg will determine if money paid during the peak of the financial crisis should be given back. LINK

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