WASHINGTON -- Higher mortgage rates drove down sales of existing homes to the lowest level in almost two years in October, a sign that the red-hot housing market is cooling, economists said.
Sales of existing single-family homes plummeted a bigger-than-expected 6.6 percent, the fourth straight monthly decline, to a seasonally adjusted annual rate of 4.79 million units, the National Association of Realtors said Monday.
That was the lowest level since January 1998, when 4.59 million units were sold.
"There is now a clear slowdown under way," said First Union's chief economist David Orr. Existing-home sales have fallen each month since hitting a record of 5.63 million units in June. From that peak, existing-home sales have declined by 15 percent, Orr said.
Nonetheless, the industry believe it is still heading for another year of record sales, estimated to be 5.20 million units this year.
"Home buyers continue to enjoy a variety of factors, such as wage growth and low inflation that make it easier for them to afford to own a home," said the association's president, Dennis Cronk.
Although private economists also believe the industry will end up with another banner year, they predict all home sales -- both existing and new -- will continue to slow through the rest of the year and into the early part of next year.
Economists blamed rising mortgage rates and concern over possible further increases as the main reasons for October's sharp decline.
The average rate on a 30-year fixed-rate mortgage was 7.85 percent in October, up from September's 7.82 percent and much higher than the 6.71 percent rate for October 1998, the association said, citing figures from Freddie Mac, the mortgage company.
Since January, mortgage rates have climbed a full percentage point higher, said David Lereah, chief economist for the Mortgage Bankers Association of America. That means 450,000 households have been priced out of the housing market and almost half of them are first-time home buyers, he said.
"Home sales are coming down because of higher mortgage rates and the people who are hurt the most are first-time home buyers who barely can afford to buy," Lereah said. "Once rates go up, they are priced out of the market."
These first-time home buyers, Lereah said, tend to be minorities and people with low incomes.
But the association believes rates will drop before the year ends, prompting a flurry of home buying.
The Federal Reserve has raised interest rates three times this year in an effort to slow the economy and keep inflation at bay. That has made borrowing more expensive for consumers and businesses.
Existing-home sales were down in all parts of the country last month.
The West posted the biggest decrease, with sales falling 7.8 percent in October to an annual rate of 1.31 million units. Sales in the Midwest declined by 7.1 percent to an annual rate of 1.04 million units. In the South, sales decreased by 6.1 percent to an annual rate of 1.86 million and in the Northeast, they fell by 4.9 percent to rate of 580,000 units.
Meanwhile, the national median sales price for existing homes rose 3.9 percent to $133,100 in October over the same month a year ago, the association said. The median is the point at which half the homes sell for less and half sell for more. However, October's median price is slightly lower than the $134,400 price in September.