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NEW YORK (THESTREET) -- Existing home sales declined for the second consecutive month in October, with slowing buyer demand and low inventory holding back sales.

The National Association of Realtors said sales of previously-owned homes declined to a seasonally-adjusted annual rate of 5.12 million units from 5.29 million in September. Economists on average expected the annualized sales pace for October to come in of 5.13 million units.

Existing home sales are completed transactions that include single-family homes, townhomes, condominiums and co-ops, based on transaction closings from Multiple Listing Services (MLS). Existing home sales account for more than 90% of total U.S. home sales.

October sales were up 6% from a year earlier.  Existing home sales have shown annual gains for 28 consecutive months.

Despite the sequential slowdown in sales, the national median price for existing homes rose 12.8% year-over-year to $199,500. NAR economist Lawrence Yun said a shortage of inventory continues to drive up prices. "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," said Yun.

But it appears that the decline in inventory has bottomed. While inventory was down 1.8% from the previous month, it was up 0.9% from a year earlier. At the current sales pace, it would take 5 months to exhaust all supply, up from 4.9 months in September.

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According to Trulia economist Jed Kolko, inventory in October was actually up 0.4% on a seasonally-adjusted basis and is up 7% since January.

The median time on market for all homes was 54 days in October, up from 50 days in September, though well below the 71 days on market in October 2012.

Distressed sales -- short sales and foreclosures -- accounted for 14% of all sales during October, down from 25% in October 2012. The changing mix of sales also explains the price increases.

Excluding distressed sales, existing home sales was up 22% year-over-year, which is a good sign that the market is returning to more normal levels.

The market, however, continues to be dominated by cash purchases. First-time buyers accounted for 28 percent of purchases in October, unchanged from September, but down from 31 percent in October 2012.  All-cash sales comprised 31 percent of transactions in October, down from 33 percent in September; they were 29 percent in October 2012.

-- Written by Shanthi Bharatwaj in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.