Did the Housing Market Hit Another Speed Bump?

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After reaching their best level in nearly four years, existing-home sales declined last month as affordability issues continue to hinder demand. The National Association of Realtors announced Monday that total existing-home sales, which are completed transactions of single-family homes, town homes, condos, and co-ops fell 1.9 percent to a seasonally adjusted annual rate of 5.29 million units in September. In comparison, August showed a downwardly revised annual rate of 5.39 million units.

The results were slightly worse than expected. Economists estimated an annual pace of about 5.3 million units. However, existing-home sales are up 10.7 percent from the 4.78 million-unit level seen a year earlier. Total sales have now been above year-ago levels for 27 consecutive months.

“Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” explained Lawrence Yun, the NAR’s chief economist. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”

In September, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.49 percent, up from 4.46 in August, according to Freddie Mac. That is the highest rate in more than two years and well above last year’s September rate of only 3.47.

Single-family home sales last month also declined 1.5 percent to a seasonally adjusted annual rate of 4.68 million units, compared to 4.75 million units in August. On a regional basis, existing-home sales in the South decreased 1.4 percent, while the Northeast fell 2.8 percent. Sales in the Midwest plunged 5.3 percent in September. The West was the only major region to post a gain, as existing-home sales rose 1.6 percent.

Low inventory levels continue to support home prices. The national median existing-home price for all housing types was $199,200 in September, up 11.7 percent from a year earlier. This is the 19th consecutive month of year-over-year price gains. The last time this occurred was from January 2005 to May 2006, during the housing bubble.

Total housing inventory at the end of September remained unchanged from the prior month at 2.21 million existing homes available for sale, representing a 5-month supply. Compared to last year, unsold inventory is up 1.8 percent when there was a 5.4-month supply. All-cash sales accounted for 33 percent of transactions in September.

In morning trading, shares of Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) were relatively flat. However, homebuilders PulteGroup (NYSE:PHM) and Lennar (NYSE:LEN) fell more than 2 percent. Shares of D.R. Horton (NYSE:DHI) plunged 3 percent. Home Depot and Lowe’s have been among the best-performing names in the housing industry this year, but D.R. Horton and PulteGroup have underperformed.

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