Market conditions are combining to make homebuying less attractive, according to new data from the National Association of Realtors, as existing U.S.home sales made a significant drop in November.
“Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” said NAR chief economist Lawrence Yun in a statement. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”
Total sales fell 4.3 percent last month to a seasonally adjusted annual rate of 4.90 million homes, down from 5.12 million in October. Compared with November 2012, sales fell 1.2 percent, the first year-over-year decrease in 29 months.
Meanwhile, the median home price rose on a yearly basis but fell from October. The new median in November was $196,300, down from $197,500 the month before, but was up 9.4 percent from one year earlier. Part of the reason for the yearly price jump is the drop in distressed properties available. While the percentage of short sales and foreclosures was unchanged from October – 14 percent – it is down dramatically from November 2012 when distressed property sales made up 22 percent of all sales. With fewer discounted homes for sales, prices get pushed higher.
Plus mortgage rates have been on the rise. The average rate on a 30-year fixed rate loan in November rose to 4.26 percent, excluding fees, according to Freddie Mac, up from 4.19 percent in October and from 3.35 percent the year before. With the Federal Reserve starting to taper is stimulus program in January, rates are likely to continue rising through 2014.
And inventory remains tight. There were 2.09 million existing home for sale in November, down 0.9 percent from October. At the current sales pace there is a 5.1-month supply.
With limited supply and rising rates, home sales may continue to slump through the traditionally slower winter months.