Sales of previously owned homes retreated in October from the second-highest level since 2007 as lean inventory limited momentum in residential real estate.
Closings, which usually take place a month or two after a contract is signed, dropped 3.4% to a 5.36 million annual rate, the National Association of Realtors reported Monday. Prices increased compared with October 2014 as the number of dwellings on the market decreased.
A limited supply of available properties, particularly more affordable homes, has made for a slow and steady recovery in residential real estate. At the same time, steady employment growth, rising rents and low borrowing costs are bolstering prospects for the market.
"Unless supply catches up, there will still be problems on the price side," said Xiao Cui, an economist at Credit Suisse in New York. "We think that job growth and earnings growth have been promising this year and should help affordability."
The median forecast of 71 economists surveyed by Bloomberg called for sales at a 5.4 million annual rate. Estimates ranged from 5.09 million to 5.6 million. September’s pace was unrevised at 5.55 million, the second-fastest rate since February 2007.
Compared with a year earlier, purchases increased 0.9% in October before adjusting for seasonal variations.
The median price of an existing home rose 5.8% from October 2014 to $219,600. The appreciation was led by an 8% year-to-year advance in the West.
Prices have been bolstered by a dearth of supply on the market. The number of previously owned homes for sale dropped 2.3% in October from a month earlier to 2.14 million, the fewest since March.
"This is disturbing," Lawrence Yun, NAR chief economist, told reporters as the figures were released. Yun said he forecasts 5.3 million homes will be sold in 2015, the most in eight years. "Once we reach the spring buying season we might be faced with a notable inventory crunch."
At the current sales pace, it would take 4.8 months to sell those houses, compared with 4.7 months at the end of the prior month. Less than a five-month supply is considered a tight market, the Realtors group has said.
Purchases declined in three of four regions, led by an 8.7% drop in the West, the Realtors' data show. They were unchanged in the Northeast.
Sales of existing single-family homes declined 3.7% to an annual rate of 4.75 million from a month earlier. Purchases of multifamily properties — including condominiums and townhouses — fell 1.6%.
While housing starts declined more than forecast in October, a boost in permits indicates that builders should stay busy in the months ahead, according to Commerce Department data released last week.
Residential starts declined 11% to a 1.06 million annualized rate from a 1.19 million pace the prior month. Permits for single-family home construction, the largest and most economically significant part of the market, climbed to a 711,000 rate, the strongest since December 2007.
A faster hiring pace is supporting Americans who are weighing a home purchase. Payroll growth surged in October, with the 271,000 gain exceeding all estimates in a Bloomberg survey of 93 economists. Last month's advance lifted the monthly average so far in 2015 to 206,000. That compares with a 260,000 last year that was the best since 1999.
Borrowing costs also have provided a cushion for those who can secure credit. The average 30-year fixed mortgage rate was 3.97% in the week ended Nov. 19, according to Freddie Mac data. That's close to the 3.83% average so far this year, and compares with the 6.06% average in the five years leading to the last recession.
Existing home sales, which are tallied only when purchase contracts close, account for more than 90% of the residential market. A timelier barometer is new-home purchases, because they are tabulated earlier in the process, when deals are signed.
Economists project those sales rose to a 500,000 pace in October after 468,000 the prior month, according to the Bloomberg survey median ahead of Wednesday's report from the Commerce Department.
