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Rising Prices, Tight Supply Weighing Down Home Sales in U.S.

In January, home sales in the U.S. took an unexpected fall, which lead to the largest decline year to year in over three years, in part due to the chronic lack of houses raising prices and preventing many first-time buyers from entering the market.

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This squeeze in supply and the rising interest rates for mortgages are increasing fears of a poor selling season for the spring. The report released on Wednesday by the National Association of Realtors was the second consecutive monthly drop for home sales and added to soft industry production and retail sales during January and suggests that economic growth was slower during January.

One economist on Wall Street said that there might be headwinds moving forward for home resales with increasing costs of mortgages affecting how much can be afforded by a buyer and that could hurt the sale of existing homes as well as affect the economy.

Existing how sales fell 3.2% to an annual seasonally adjusted rate of just over 5.38 million in January, with purchases dropping across each of the four regions.

Economists forecasted that home sales would rise 0.9% during January to a 5.60 million annual rate.

Existing home sales represent close to 90% of all home sales in the U.S. They dropped by 4.8% on a year on year basis during January. That was the largest drop year on year since August of 2014. The current weakness affecting home sales is due in large part because of supply constraints and not for a lack of strong demand, which has been driven hard by the robust labor market.

The shortage in the number of properties is mainly at the market’s lower end, while the amount of previously owned homes for sales increased 4.1% to more than 1.52 million units for January, while housing inventory fell 9.5% from the same month one year ago.

That represented the lowest amount of inventory for the month of January on record. The supply has dropped for 32 consecutive months compared to the same month the previous year. At the sales pace for January it would take just 3.4 months for the current inventory to be exhausted, which was up slightly from 3.2 months during December.

A supply of between six and seven months is considered to be a healthy balance between the supply and demand. The median price for homes was up by 5.8% from the same month last year to $240,500 during January, which marked the 71st straight month of price gains year on year.