Existing-home sales dropped 4.3% in November, on a seasonally adjusted basis, compared to October, according to the National Association of Realtors.
Rising mortgage interest rates, low inventory and tighter lending standards are driving the ongoing decrease in homes sales, NAR says. Still, rising home prices bode well for the market.
Looking at existing-home sales on an annualized basis, a total of about 4.9 million homes – including single-family homes, townhouses, condominiums and co-ops – had been sold in 2013 as of the end of November. This is about 1.2% below the 4.96 million that had been sold on an annualized basis as of Nov. 30, 2012.
NAR notes that November marked the first time in 29 months that sales were below year-ago levels.
"Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit," says Lawrence Yun, chief economist for NAR, 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."
The national median existing-home price for all housing types in November was $196,300, up 9.4% from November 2012.
Distressed homes – foreclosures and short sales – accounted for 14% of November sales, unchanged from October. They were 22% of all sales in November 2012. A smaller share of distressed sales is contributing to price growth, NAR finds.
Foreclosures represented about 9% of November sales, while short sales accounted for about 5%.
Foreclosures sold for an average discount of 17% below market value in November, while short sales were discounted 13%, according to the report.
Inventory continued to tighten in November, declining 0.9% compared to October. About 2.09 million existing homes were available for sale in November – about a 5.1-month supply at the current sales pace and about 5% above the supply available a year ago. In October, there was about 4.9-month supply.
First-time buyers accounted for 28% of purchases in November, unchanged from October. First-time buyers represented 30% of all sales in November 2012.
Some industry experts predict that homes sales will decline even more dramatically after the Consumer Financial Protection Bureau's new mortgage rules go into effect in January. The new ability-to-repay rules, in particular, will make it harder for some consumers to qualify for a mortgage.
"New underwriting rules to protect borrowers, effective in January, will prohibit many loan features, set tighter limits on the amount of debt a borrower can have and still get a mortgage, and require that lenders accurately measure a borrower's ability to repay," says Steve Brown, president of the NAR. "This means that qualified borrowers are getting a loan that they are very likely to be able to repay, but some borrowers may wind up paying much more for their mortgage, or not get a loan at all due to the tougher standards. The new rules may tighten credit too much, but we're hopeful regulators will make adjustments if this proves to be true."
As a result, cash sales are expected to increase in 2014 – or will at least account for a higher percentage of overall sales. In November, all-cash sales accounted for 32% of transactions, up from 31% in October and 30% in November 2012. Individual investors purchased 19% of homes in November – unchanged from October and from November 2012. Last month, seven out of 10 investors paid cash.
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