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Rising mortgage rates are beginning to throw a little cold water on the hot housing market.


National Association of Realtors

reported Friday that the total number of existing homes sold in January dropped 10.7% from December to an annual rate of 4.59 million. That is the lowest level in more than two years and a 10% drop from January 1999.

Despite the drop in January, home sales remained at historically high levels as stock market gains and the booming economy have made Americans rich and confident.

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Most economists attributed the slowdown in sales to rising interest rates.

Federal Reserve

policymakers have raised short-term interest rates by a full point since mid-1999, hoping to head off inflationary pressures. That lifted the average rate on a conventional 30-year mortgage to 8.21% in January, compared with 7.91% in December and 6.79% in January 1999, according to Freddie Mac, one of the nation's largest home lenders.

But the dwindling supply of available homes is also a constraining factor, said James Smith, the realtors group's chief economist.

"There simply aren't enough homes for sale in many parts of the United States," Smith said. At the end of January, the supply of homes for sale dropped to a record low of 1.15 million nationwide, which represents only three months of supply, he added.

The largest drop was seen in the western U.S., where sales dropped 22.4% from the prior January. Year-over-year sales declined 10.4% in the Midwest, 12.1% in the Northeast and 1% in the South.

But the shrinking supply of homes for sale didn't do much to push up the prices of homes. Year-over-year, the median price of existing homes nationwide edged only 1.5% higher to $132,000, much slower than overall inflation during that period.