Existing-home sales decline on falling affordability, tighter inventory

Consumer buying power fades as choices and prices shift

The sale of all existing homes fell 3.2% to an annual rate of 5.12 million units in October as rising prices tripped up buyers – a data point further constrained by falling inventory levels, the National Association of Realtors noted Wednesday.

Existing-home sales is a measure of sales on all single-family residences, townhomes, condos and co-ops. Compared to last year, October sales remained 6% higher than the 4.83-million unit sales pace reported last month. But this is not an unusual occurrence given the fact that prices have been rising year-over-year for the past 28 months, NAR said.

With the national median existing-home price up 12.8% from last year, buyers are facing rising prices at a time when lower inventory levels are pushing them even higher. Yet, the fall in existing-home sales suggests potential homebuyers are not keeping up.

"The erosion in buying power is dampening home sales," said Lawrence Yun, NAR’s chief economist. "Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country. More new home construction is needed to help relieve the inventory pressure and moderate price gains."

Right now, the median existing-home price in the U.S. is hovering at $199,500, an increase of 12.8% from October 2012.

Distressed home sales also are much lower today, falling 25% from October 2012 levels. With fewer foreclosure-related sales, the median price of existing properties continues to escalate beyond many borrowers' reach. 

Only 9% of October sales were classified as foreclosures, while 5% were short sales. Foreclosures faced a 17% discount when compared to similar properties, with short sales discounted by 14%.

The shrinking U.S. housing inventory hit 2.13 million existing home sales in October, a 1.8% decline, and a 5-month supply of homes at the current sales pace. That compares to a 4.9-month supply in September when the market was still moving at a faster pace.

The tightest inventory conditions popped up in the markets of Oakland, Calif.; San Francisco; San Jose, Calif.; Denver and Stockton-Lodi, Calif., NAR said.

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