October Existing-Home Sales Cool but Low Inventory Drives Prices

Existing-home sales declined for the second consecutive month in October, while constrained inventory means home prices continue to see double-digit year-over-year gains, according to the National Association of Realtors®.

Total existing-home sales¹, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.2 percent to a seasonally adjusted annual rate of 5.12 million in October from 5.29 million in September, but are 6.0 percent higher than the 4.83 million-unit level in October 2012. Sales have remained above year-ago levels for the past 28 months.

Lawrence Yun, NAR chief economist, said a flattening trend is expected. “The erosion in buying power is dampening home sales,” he said. “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.”

The national median existing-home price² for all housing types was $199,500 in October, up 12.8 percent from October 2012, which is the 11th consecutive month of double-digit year-over-year increases.

Distressed homes³ – foreclosures and short sales – accounted for 14 percent of October sales, unchanged from September; they were 25 percent in October 2012. Part of the gain in median price is from a smaller share of distressed sales.

Nine percent of October sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 17 percent below market value in October, while short sales were discounted 14 percent.

Total housing inventory at the end of October declined 1.8 percent to 2.13 million existing homes available for sale, which represents a 5.0-month supply⁴ at the current sales pace; the relative supply was 4.9 months in September. Unsold inventory is 0.9 percent above a year ago, when there was a 5.2-month supply.

The median time on market for all homes was 54 days in October, up from 50 days in September, but well below the 71 days on market in October 2012. Short sales were on the market for a median of 93 days, while foreclosures typically sold in 46 days, and non-distressed homes took 53 days. Thirty-six percent of homes sold in October were on the market for less than a month.

Data from realtor.com,⁵ NAR’s listing site, show the tightest inventory conditions, reported as median age of inventory, are in Oakland, Calif., 30 days; and four markets at 48 days each:  San Francisco; San Jose, Calif.; Denver and Stockton-Lodi, Calif.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.19 percent in October from 4.46 percent in September; the rate was 3.38 percent in October 2012.

NAR President Steve Brown, co-owner of Irongate, Inc., Realtors® in Dayton, Ohio, said credit remains unnecessarily restrictive. “Although mortgage interest rates are still historically affordable, some financially qualified buyers are being denied a loan,” he said. “The risk-averse nature of lending also is impacting small builders who are unable to get construction loans, even when they see strong local demand. We simply have to reverse the pendulum swing back toward the middle to give more creditworthy borrowers access to safe and sound financing.”

Timing is a factor as lenders brace for the imminent implementation of the Qualified Mortgage rules that will require a lot more time, documentation and scrutiny to process loans.

First-time buyers accounted for 28 percent of purchases in October, unchanged from September, but down from 31 percent in October 2012.

All-cash sales comprised 31 percent of transactions in October, down from 33 percent in September; they were 29 percent in October 2012. Individual investors, who account for many cash sales, purchased 19 percent of homes in October, unchanged from September; they were 20 percent in October 2012. Last month, two-thirds of investors paid cash.

Single-family home sales fell 4.1 percent to a seasonally adjusted annual rate of 4.49 million in October from 4.68 million in September, but are 5.2 percent above the 4.27 million-unit pace in October 2012. The median existing single-family home price was $199,500 in October, up 12.7 percent from a year ago.

Existing condominium and co-op sales rose 3.3 percent to an annual rate of 630,000 units in October from 610,000 in September, and are 12.5 percent above the 560,000-unit level a year ago. The median existing condo price was $199,200 in October, which is 13.1 percent above October 2012.

Regionally, existing-home sales in the Northeast declined 2.9 percent to an annual rate of 670,000 in October, but are 11.7 percent higher than October 2012. The median price in the Northeast was $247,300, up 7.4 percent from a year ago.

Existing-home sales in the Midwest slipped 1.6 percent in October to a pace of 1.22 million, but are 8.0 percent above a year ago. The median price in the Midwest was $154,700, which is 9.3 percent higher than October 2012.

In the South, existing-home sales declined 1.9 percent to an annual level of 2.06 million in October, but are 7.3 percent above October 2012. The median price in the South was $171,500, up 12.9 percent from a year ago.

With constrained inventory, existing-home sales in the West fell 7.1 percent to a pace of 1.17 million in October, and are 0.8 percent below a year ago. The median price in the West was $284,800, up 17.2 percent from October 2012.