Implications:  Existing home sales retreated in March after posting the second largest monthly gain on record in February.  Sales fell 4.9% for the month, returning to a more moderate pace.  Despite the negative headline number, Q1 as a whole posted a 1.2% gain over the Q4 2018 average, the first quarterly gain after four consecutive declines.  We don't believe this is just coincidence; the fundamentals have improved of late for existing homes.  First, despite median prices rising for the 85th month in a row on a year-over-year basis, the rate of growth has been slowing, with March showing a modest increase of 3.8%.  This means wages are now growing nearly as fast as prices, which – along with falling mortgage rates –boosts affordability.  The primary culprit behind the tempered existing housing market in 2018 was lack of supply, but here too there's been progress.  Inventories have turned a corner, rising on a year-over-year basis (the best measure for inventories given the seasonality of the data) for the eighth month in a row.  It looks like sellers really are changing their behavior, and a reversal in the steady decline of listings from mid-2015 through mid-2018 is a welcome reprieve for buyers, boosting supply and sales, while keeping a lid on price growth.  That said, some headwinds for sales remain.  First, potential homebuyers in high-tax states are likely still reeling from the $10,000 cap on state and local tax deductions.  Second, the months' supply of existing homes – how long it would take to sell the current inventory at the most recent sales pace – was only 3.9 months in March and has now stood below 5.0 (the level the National Association of Realtors considers tight) since late 2015.  It won't be a straight line higher for sales in 2019 but fears the housing recovery has ended are overblown.

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