Dow Jones Newswires
Sales of previously owned homes slipped for the second consecutive month in October, the latest sign that increased interest rates are weighing on the housing recovery.
Existing-home sales declined 3.2 per cent in October to a seasonally adjusted annual rate of 5.12 million, the National Association of Realtors said Wednesday. The results were the slowest sales pace since June and were down from 5.29 million in September.
Sales of previously owned properties reached a recent peak in July but have eased somewhat since, reflecting increased interest rates. Rates for a 30-year mortgage jumped in June and stayed near 4.5 per cent through mid-September, according to Freddie Mac. A year ago, buyers were paying a rate of 3.4 per cent for the same loan.
October's sales data reflects offers made in August and September because it typically takes one or two months for a buyer to close on a home.
Mortgage rates did ease a bit in late September after the Federal Reserve said it would not start to pull back on the pace of its $US85 billion a month in bond purchases.
Increased interest rates make mortgage payments more expensive for many buyers. Roughly, every one percentage point increase in mortgage rates makes homes about 10 per cent more expensive for buyers by increasing the monthly mortgage payments.
The federal government shutdown last month also delayed some sales, said Realtors economist Lawrence Yun. The Realtors group reported that 13 per cent of closings during the month were delayed either because buyers couldn't obtain a government-backed loan or the Internal Revenue Service couldn't verify income.
Existing home sales had trended up from the midpoint of 2010 until this summer. That was a positive sign for the broader economy because those large purchases indicate buyers' confidence and are often followed by additional spending on furnishings and improvements.
At the same time home prices are rising, making homes less affordable.
In October, the median price of an existing home was $199,500, up 12.8 per cent from a year earlier.
Meanwhile, the number of unsold homes on the market declined 1.8 per cent from a month earlier to 2.13 million at the end of October. Compared to a year ago, inventories are up slightly. The inventory level represents a five month supply at the current sales pace.
The figures on existing-home sales match other indications of cooling in the housing market. Home builders' confidence level slipped this fall from post-recession highs reached during the summer, but remains in positive territory.
The government's September data on newly built homes has been delayed due to the shutdown. Those figures will be released next week and in early December.