September existing home sales fall 1.9%

Julie Schmit | USA TODAY

Home sales cooled in September because of higher interest rates, and the recent government shutdown may put a damper on activity for this month, too.

Existing home sales dropped 1.9% in September to a seasonally adjusted annual rate of 5.29 million from 5.39 million in August but were still up 10.7% from last year, the National Association of Realtors said Monday.

The decline was expected, given higher rates and rising home prices that pushed affordability to five-year lows, says Lawrence Yun, NAR chief economist.

The September figures reflect sales contracts signed in July and August when interest rates for 30-year fixed-rate loans were nearing their peak for the year.

Rates have since fallen — to about 4.3% as of last week for a fixed-rate 30-year mortgage, Freddie Mac says.

Home sales going forward may also face pressures.

On a per-capita basis, existing home sales are now back to historically normal levels, so there's not room for the increases the market saw earlier this year, says economist Paul Diggle with Capital Economics.

Higher interest rates, higher home prices and relatively flat incomes will also conspire against buyers, Yun says. He expects existing home sales next year to be flat with this year after having risen for three straight years.

The recent government shutdown also had a negative impact on consumer sentiment and added to economic uncertainty. That will cause home sales to "ebb" in the months ahead, says Stephanie Karol of IHS Global Insight.

Even if sales flatten next year, prices will continue to rise, Yun says.

One factor helping prices is fewer distressed homes on the market. Last month, distressed homes — foreclosures and short sales — accounted for 14% of September sales vs. 24% a year ago.

While all home sales were up 10.7% year over year, they were up 25% when distressed sales were excluded, says Jed Kolko, Trulia economist.

Higher prices should continue to bring more sellers onto the market, Kolko says.

In September, the supply of homes for sale stood at five months, NAR says. That means they'd all sell in 5 months if no new supply was added. Realtors generally consider a six- to seven-month supply to be a balanced market.

Homes still continue to sell fast, but not as fast as before. The median time on market was 50 days in September, up from 43 days in August but down from 70 days a year earlier, NAR says.

The national median existing-home price for all housing types was $199,200 in September, up 11.7% from a year ago. Median prices can vary depending on the type of home sold.