* Home sales fall 1.9 percent in September
* August sales pace revised down sharply
* Median home price up 11.7 percent from year-ago
By Lucia Mutikani
WASHINGTON, Oct 21 U.S. home resales fell in
September and prices cooled as higher mortgage rates took the
edge off the housing market recovery.
The National Association of Realtors said on Monday that
sales of previously owned homes fell 1.9 percent last month to
an annual rate of 5.29 million units.
At the same time, the median price rose 11.7 percent in
September from a year ago to $199,200. While that was the 10th
straight month of double-digit gains, it was the smallest
increase since April.
"This softening had been expected in response to the
increase in mortgage rates that began in May," said Daniel
Silver, an economist at JPMorgan in New York.
The NAR said a combination of high home prices, barely
rising salaries and higher mortgage rates was hurting
affordability, which hit a five-year low in September according
to its gauge. The trade group said sales probably peaked in July
August sales were revised to a 5.39 million rate, unchanged
from July, well below the 5.48 million rate previously
Last month's sales drop adds to other indicators, such as
pending contracts to buy previously owned homes and home
builders' confidence, that have suggested a run-up in mortgage
rates is starting to slow the housing market recovery.
Interest rates have risen sharply since May on expectations
the Federal Reserve would start cutting back on its monthly bond
purchases this year, with the 30-year fixed mortgage rate
surging nearly a full percentage point.
It hit 4.49 percent in September, the highest since July
2011, according to Freddie Mac.
The Fed surprised markets last month by sticking to its $85
billion per month bond-buying pace. In doing so, it cited the
increase in mortgage rates. Still, the central bank is widely
expected to start tapering its purchases by early next year.
WEAK OCTOBER SALES EXPECTED
Economists said they expected home resales to decline again
in October in part because a 16-day partial government shutdown
had hurt consumer confidence and likely delayed the processing
of mortgages backed by the Federal Housing Administration.
Sales in coming months are also expected to be hampered by
increases in flood insurance rates.
Despite these headwinds, economists said the housing market
recovery remained intact.
"The housing market is not faltering, it's just that the
rapid improvement has been stunted," said Joel Naroff, chief
economist at Naroff Economic Advisors in Holland, Pennsylvania.
"That is not a terrible thing as many were worried about
another bubble being formed. I still think the sector has a long
way to go."
While home resales rose 10.7 percent from a year ago, the
increase was the smallest in five months.
Homes are also not selling as fast as they did in the
summer. A home's median time on the market in September was 50
days. That was up from 43 days in August, but down from more
than 70 days a year ago.
First-time buyers accounted for 28 percent of the
transactions, far below the 40 percent to 45 percent that
economists and real estate professionals view as ideal.
Investors, who have been the main drivers of sales, bought
19 percent of the homes in September, with almost three quarters
paying in cash.
But there was a silver lining in the report, with distressed
properties - which can depress prices because they typically
sell at deep discounts - accounting for only 14 percent of sales
last month. That compared to 24 percent a year ago.
The number of unsold homes on the market was unchanged at
2.21 million in September, representing a 5.0 months' supply.
That compared to 4.9 months' worth in August. A 6.0 month's
supply is normally considered healthy.
"Higher mortgage rates may simply bring demand closer in
line with supply, slowing home price appreciation while leaving
the volume of sales relatively unimpaired," said Guy Berger, an
economist at RBS in Stamford, Connecticut.