Fewer Americans bought homes in October, a sign that rising home values may be pushing more would-be buyers to the real estate market’s sidelines.
The National Association of Realtors says that sales of existing homes fell 3.4% last month to a seasonally adjusted annual rate of 5.36 million.
The decline comes after strong growth in home-buying for much of 2015, bolstered by steady job gains and low mortgage rates. Home purchases have advanced 3.9% from a year ago, even as buyers have fewer choices because the number of listings on the market has dropped 4.5%.
But last month’s data suggests the start of a reflexive backlash after the strong gains in home-buying. The additional sales have spawned sharp price increases that have outpaced wage growth and left some would-be buyers out of the market.
The October sales decrease indicates “the market is treading water,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Yet, other economists anticipate sales growth to return because of the underlying health of the broader economy. “Despite the setback, home sales should resume higher in the face of rising rents, good job growth, improved consumer confidence and still-low mortgage rates,” says Sal Guatieri, a senior economist at BMO Capital Markets.
The median home sales price was $219,600 in October, a 5.8% annual increase. But sales fell sharply in the West and South, where prices have risen at the fastest rates this year—purchases declined 8.7% in the West and 3.2% in the South, while dipping 0.8% in the Midwest and staying unchanged in the Northeast on a seasonally adjusted basis.
Still, the 5% unemployment rate has helped coax traditional buyers into the market, supplanting the investors who bought foreclosed properties for all-cash in the aftermath of the Great Recession. Current homeowners seeking an upgrade or chance to downsize appear to have accounted for much of this year’s sales gains, as first-time buyers accounted for 31% of sales in October. First-time buyers have historically made up 40% of all sales.
On the downside, tight inventories are curbing enthusiasm among some homebuyers. Just 4.8 months’ supply of homes is available, well below the 6 months associated with a balanced market.
The limited supplies and greater demand fueled higher home values. Home prices have appreciated at more than double the gains in average hourly earnings, requiring buyers to set aside more savings for a down payment or bid more fiercely for the most desirable properties.
Low mortgage rates have offset some of the pain from those price gains. But rates have started to rise ahead of a December Federal Reserve meeting, where Fed officials are expected to raise short-term rates for the first time in nearly a decade.
The average, 30-year fixed mortgage rate has risen to just a hair under 4% from 3.79% a month ago, according to mortgage buyer Freddie Mac.