WASHINGTON—Sales of previously owned U.S. homes posted their largest annual decline since 2014 in October, as the housing market continues to sputter due to higher mortgage rates that are reducing home affordability.
The latest data offered a mixed picture of a market that isn’t in free fall but also is far from robust. Existing-home sales edged up 1.4% in October from the previous month to a seasonally adjusted annual rate of 5.22 million, the National Association of Realtors said Wednesday. That broke a six-month streak when sales declined compared with a month earlier.
Sales, however, posted a sharp 5.1% drop compared with a year earlier, indicating the market is likely to end the year on a sluggish note.
Lawrence Yun, the trade group’s chief economist, said the annual decline signals softness in the housing sector that is likely to persist in the months to come.
“There is some feeling that the market could actually go even lower than what it is now in terms of sales,” Mr. Yun said.
When sales began slowing this spring, economists initially blamed a shortage of inventory, which has plagued the housing market throughout the recovery. But rising mortgage rates are playing a bigger role in slowing buyer demand than many economists had expected, shaking confidence that now is a good time to buy a home, according to recent surveys.
Mr. Yun said higher interest rates appear to be choking off buyer demand, and said the Federal Reserve should consider pausing its rate increases to give the housing sector time “to be on firmer ground.”
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Mike Fratantoni, chief economist at the Mortgage Bankers Association, said recent declines in the stock market are also causing fresh unease. “The level of volatility in the stock market is reflecting a lot of uncertainty about where we are with the broader economy. There is a little bit of increased anxiety about how much things are going to slow,” he said.
The good news for buyers is that conditions are becoming friendlier to them, as mortgage rate and home-price increases slow and inventory of homes for sale is growing compared with last year.
The rate for a 30-year fixed rate mortgage averaged 4.81% this week, down from 4.94% a week earlier, according to data released by Freddie Mac on Wednesday. Rates are still up significantly from a year ago, when they averaged 3.92%.
The median sale price for an existing home in October was $255,400, up 3.8% from a year earlier. That shows a cooling from a year ago, when prices rose about 5.5%.
There was a 4.3-months’ supply of homes on the market at the end of October, based on the current sales pace, down from 4.4 months in September but up from 3.9 months a year ago.
Mr. Fratantoni said the combination of more muted price growth and a greater number of homes for sale could boost the housing market in the spring, especially if wages continue to rise.
“We’re in this awkward place right now,” he said.
Purchases of previously owned homes account for the bulk of U.S. homebuying activity. The Commerce Department releases data on October new-home sales next Wednesday.
Home construction is weakening some, too. Starts fell in October for single-family construction, and permits, which can signal how much construction is planned, dropped 0.6% from September to an annual pace of 1.263 million last month.
Builders are taking a cautious stance given the Federal Reserve’s plan to continue gradually raising interest rates, the National Association of Home Builders said Monday. The trade group’s gauge of U.S. home-builder confidence fell sharply in November, dragged down by heightened concerns about affordability in the housing market.