Home sales weaken more than expected

Home sales fell for the second consecutive month in October, while prices continue to rise given a limited supply of homes for sale, the National Association of Realtors says.

Total existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.12 million in October from 5.29 million in September. They are 6% higher than the 4.83 million-unit level in October 2012.

Economists' median forecast was for an annual rate of 5.25 million last month, according to an Action Economics' survey.

A flattening trend is expected, says Lawrence Yun, NAR chief economist.

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

Single-family home sales fell 4.1% in October from September but remained 5.2% above year ago levels.

Homes also spent more time on the market, at a median of 54 days vs. 50 in September. And the supply of homes for sale edged up to 5 months from 4.9 months. That means they would all sell at the current pace if no more homes came on the market. Supplies are much tighter in some parts of the country.

Distressed sales accounted for 14% of sales vs. 25% a year ago.

The interest rate spike in May and June hurt October sales, says Jed Kolko, Trulia economist, while the effect of the recent rate decline has yet to be reflected in sales data.

Other recent housing data shows that the market "has come off the boil," says Paul Diggle, economist with Capital Economics.

Home builder confidence moderated in October and there have been signs that price gains are slowing.

Still, Diggle says that while the pace of recovery may be slowing, it's not reversing. Indeed, September home prices were up 12% from a year earlier, CoreLogic says.

The recent fall back in mortgage interest rates is also good news for housing, says Madeline Schnapp, director of economic research for home-sale tracker PropertyRadar.

Zil! low data shows the 30-year-fixed rate mortgage at 4.06% as of Tuesday. Rates will likely be helped by expectations that Janet Yellen, who is likely to succeed Ben Bernanke as the Federal Reserve's chairman next year, will push to keep rates low for several more years.

While it's normal for home sales to decline as the holiday season approaches, this time was different, says Ellen Haberle, economist for brokerage Redfin.

She says the uncertainty created by the government shutdown and debt ceiling battle in October left Americans worried about the economy. "It is no surprise that many buyers put their home-buying plans on hold that month."