Low Inventory Drives US Home Price Increase

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A constrained inventory in the U.S. housing market led to the 11th consecutive month of double-digit annual increases for home prices in October, according to the National Association of Realtors. 

The median home price for all housing types -- single-family homes, townhomes, condominiums and co-ops -- reached $199,500 in October, increasing 12.8 percent from last year.

Existing-home sales for all types reached 5.12 million in October, falling 3.2 percent from the seasonally adjusted 5.29 million in September. However, sales were 6.0 percent higher than last year and have remained above year-ago levels for the past 28 months, NAR reports. 

"The erosion in buying power is dampening home sales," Lawrence Yun, NAR chief economist, said in the report. "Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country."

An increase in new home construction is needed to help relieve the inventory pressure and moderate price gains, Mr. Yun said. 

Distressed home sales -- foreclosures and short sales -- accounted for 14 percent of all sales in October, lower than the 25 percent last year. 

First-time buyers represented 28 percent of transactions, unchanged from September, but down from 31 percent last year. All-cash sales made up 31 percent of home purchases, down from 33 percent in September and 29 percent last year. 

Interest rates have been increasing in the past couple of weeks, but still remain historically affordable, NAR reports. However, qualified buyers are being denied a loan, while obstacle remain for other market players. 

"The risk-averse nature of lending also is impacting small builders who are unable to get construction loans, even when they see strong local demand," NAR president Steve Brown said in the report. "We simply have to reverse the pendulum swing back toward the middle to give more creditworthy borrowers access to safe and sound financing."