US home resales fell more than expected in December as the supply of houses on the market dropped to levels last seen in 1999, which could have limited choice for buyers.
The National Association of Realtors said on Tuesday existing home sales decreased 2.8 percent to a seasonally adjusted annual rate of 5.49 million units. Rising home prices and mortgage rates also likely sidelined some buyers from the housing market last month.
November's sales pace was revised up to 5.65 million units, which was the highest since February 2007, from the previously reported 5.61 million units.
Economists had forecast sales declining 1.1 percent to a 5.52 million-unit pace in December. Sales increased to 5.45 million units in 2016, the highest since 2006, from 5.25 million in 2015.
The dollar was little changed against a basket of currencies after the data, while prices for US government bonds trimmed losses. US stocks were trading lower. The PHLX housing index was up 2.25 percent.
While a strengthening economy and tightening labour market, which is steadily driving up wages, are supporting the housing market, sales remain hamstrung by a dearth of inventory. Last month, the number of unsold homes on the market fell 10.8 percent from November to 1.65 million units, the lowest level since December 1999 when the NAR started tracking the series.
Supply was down 6.3 percent from a year ago and has now declined for 19 straight months on a year-on-year basis. With fewer homes available for sale, house prices continued to rise.
The median house price increased 4.0 percent from a year ago to $232,200 last month. At the same time, the fixed 30-year mortgage rate increased 43 basis points in December from November to an average of 4.20 percent, according to data from mortgage finance firm Freddie Mac.
That was the highest since April 2014. Mortgage rates could rise further as the Federal Reserve has forecast three rate hikes this year. The US central bank raised its benchmark overnight interest rate in December by 25 basis points to a range of 0.50 percent to 0.75 percent.
While the Realtors group is forecasting existing home sales increasing 1.0 percent this year to 5.52 million units, it expressed concerns over President Donald Trump's suspension last Saturday of a plan by the Obama administration to cut mortgage insurance premiums on federally insured home loans.
The reduction in Federal Housing Administration (FHA) mortgage insurance premiums, announced in the final days of Barack Obama's presidency and due to take effect on January 27, had been estimated by the government to save eligible homeowners an average of $500 a year. According to NAR, about 750,000 to 850,000 home buyers would face higher costs, and 30,000 to 40,000 new home buyers would be sidelined without the reduction.
Last month, sales of previously owned homes fell 6.2 percent in the Northeast and declined 4.8 percent in the West. They dropped 3.8 percent in the Midwest and were unchanged in the South.
At December's sales pace, it would take 3.6 months to clear the stock of houses on the market, the fewest since January 2005. That was down from 3.9 months in November. A six-month supply is viewed as a healthy balance between supply and demand. With supply tightening, house prices notched their 58th consecutive month of year-on-year gains in December. House prices increased 5.2 percent in 2016 to an average of $233,900. Rising mortgage rates could, however, slow house price increases.
Higher prices are increasing equity for homeowners and may be encouraging some to put their homes on the market. But combined with higher mortgage rates, they could make it increasingly difficult for first-time buyers to purchase homes. First-time buyers accounted for 32 percent of transactions last month, well below the 40 percent share that economists and realtors say is needed for a robust housing market. They accounted for 32 percent of transactions in 2016.
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