Rising mortgage rates slow pace of home sales

SAN FRANCISCO, CA - MAY 28: A sale pending sign is posted in front of a home for sale on May 28, 2013 in San Francisco, California. According to the Standard & Poor's Case-Shiller index, U.S. home prices surged 10.9 percent in March compared to one year ago, the largest gain since 2007. Phoenix, Arizona recorded the largest gains with prices spiking 22.5 percent and San Francisco, California was a close second with gains of 22.2 percent. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan

WASHINGTON Rising interest rates and home prices are discouraging Americans from jumping into the housing market.

The National Association of Realtors says sales of re-sold homes fell 1.9 percent in September to a seasonally adjusted annual rate of 5.29 million. That's down from a pace of 5.39 million in August, which was revised lower. The sales pace in August equaled July's pace. Both were the highest in four years and consistent with a healthy market.

"Affordability has fallen to a five-year low as home price increases easily outpaced income growth," said Lawrence Yun, the trade group's chief economist, in a statement. "Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown."

Most economists expect housing will continue to recover, especially now that mortgage rates have stabilized in recent months. Final sales in September reflected contracts signed in July and August, when rates were about a percentage point higher than in May.

"Mortgage rates are still very low, but the market nevertheless has to adjust to the rise since spring," Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a note to clients.

Home prices have risen about 12 percent in the past year.