Home sales post first annual drop in 29 months

Existing home sales fell for the third straight month and posted their first annual decline in more than two years.

 Existing home sales lost steam in November as buyers faced higher interest rates and a tight supply of homes for sale, the National Association of Realtors said Thursday.

Sales dropped for the third straight month to a seasonally adjusted annual rate of 4.9 million, down 4.3% from October and down 1.2% from a year earlier — marking the first year-over-year drop in 29 months.

Home sales are being hurt by higher mortgage interest rates, limited inventory and tight credit, says Lawrence Yun, NAR chief economist.

The slip in sales volume doesn't mean that the housing recovery is "coming off the rails," however, says Paul Ashworth, chief economist for Capital Economics.

That's because home prices are still rising at a rapid clip annually and new home construction is strengthening, with starts up 23% in November.

Home prices are a more reliable gauge of market strength than home sales, says Patrick Newport, IHS Global Insight economist.

In October, home prices were up 12.5% year over year but just 0.2% from September, CoreLogic data show. Virtually no month-to-month growth is expected for November, CoreLogic says.

November's sales results are more evidence of a housing market returning more to normal after a historic housing bust and then rapid price bounce off the bottom, says Budge Huskey, Coldwell Banker CEO. He, too, expects moderating price gains going forward.

The drop in existing sales in November was most pronounced in the West, which has also seen the most robust price increases amid tight inventories. Sales there were down 8.5% from October and 10% from last year, NAR says.

Homes are still selling quickly, however. For the U.S. overall, the median time on the market for a home sold last month was 56 days, down from 70 days a year earlier.

Expanding inventory may lengthen that. Since a bottom in January, the supply of homes for sale is up 8.4%, on a seasonally adjusted basis, says Jed Kolko, Trulia economist.

NAR's report follows the Federal Reserve's announcement that it will trim its bond buying starting next month.

The Fed's tapering, which was expected, will likely drive mortgage interest rates higher. That'll be "a tough reality check for many home buyers," says Ellen Haberle, economist for real estate brokerage Redfin. Many buyers have come to expect rates under 5%, she says.

The latest Freddie Mac data put the average 30-year-fixed rate loan at 4.47%, up from 3.37% a year ago. Yun expects rates to get to 5.5% by the end of next year.

Article curated from USA Today