Sales of existing homes in the U.S. fell 3.2 percent on a month on month basis due to a tight inventory supply, high mortgage rates and the 16-day partial government shutdown, according to a latest report by the National Association of Realtors.
The report states that though sales of existing multi-family homes rose 3.3 percent, sales of existing single family homes plummeted 4.1 percent. This is the lowest fall since June 2013.
The rate has been highly affected by the tight supply of inventory in the market. According to Reuters, inventory was up just 0.9 percent when compared to the rates of October 2012. This depicts the slow rise in supply in the country.
Increasing prices and mortgage rates also had a big hand in the decline of sales rate. According to Bloomberg, median existing home prices went up 12.9 percent from a year earlier. As prices inflate, mortgage rates rise significantly. In a recent report by the Mortgage Bankers Association of the country, it was revealed that the average 30-year home loan rates went up two points to 4.46 percent from the previous week.
These factors are also affecting affordability adversely. The National Association of Realtors recently released a report that showed that housing affordability rates declined across the board in most of the U.S. states.
Also, the government shutdown in October had delayed contracts from closing. The government freeze had held back income verification and processing.
While it is normal for the sales rates to come down during the holiday season, Ellen Haberle, economist at Redfin told USA Today that the debt ceiling battle and the partial shutdown were two major reasons that left all the Americans worried.
Each dynamic of the housing market has an impact on another. Experts assert that unless something is done about the supply of homes, the current condition could bog down the economy and the housing recovery.
"The erosion in buying power is dampening home sales. 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," Lawrence Yun, NAR chief economist, said in a statement.
