WASHINGTON, Oct 23 (Reuters) – U.S. existing home sales dropped to a 14-year low in September, weighed down by higher mortgage rates and house prices.

The second straight monthly decline in home resales reinforced economists’ views that the slump in residential property, which includes homebuilding, deepened in the third quarter. The housing trade has struggled to rebound after being knocked down by a resurgence in mortgage rates in the spring.

Though supply has improved, entry-level homes remain scarce in most regions of the country, keeping home prices at levels that are unaffordable for most first-period buyers.

“It will receive more rate cuts and more options to bring buyers back,” said Jennifer Lee, a elder economist at BMO financing apportionment Markets.

Home sales fell 1.0% last month to a seasonally adjusted annual rate of 3.84 million units, the lowest level since October 2010, the National Association of Realtors said on Wednesday. Economists polled by Reuters had approximate home resales would be unchanged at a rate of 3.86 million units.

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Sales likely reflected contracts signed a month or two ago, when mortgage rates were quite elevated.

Home resales, which account for a large portion of U.S. housing sales, decreased 3.5% on a year-on-year basis in September. Sales fell 1.7% in the South, with some of the decline attributed to weakness in Florida following the devastation caused by Hurricane Helene. Sales in the state could remain depressed after it was slammed by Hurricane Milton weeks later.

The Northeast and Midwest also experienced a reduce in sales, but activity increased in the West.

Mortgage rates initially dropped after the Federal savings began cutting gain rates last month, but they have risen over the history three weeks as solid economic data, including retail sales and annual revisions to national accounts, forced traders to abandon expectations for another 50-basis-point rate cut next month.

The rate on the popular 30-year fixed mortgage averaged 6.44% last week. Though that was higher than the 6.08% average at the complete of September, it was well below the 7.63% a year ago, data from mortgage finance agency Freddie Mac showed.

Signs of potential homebuyers hugging the sidelines in expectation of even lower borrowing costs were evident in government data last week showing a marginal boost in single-household building permits in September.

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Stocks on Wall Street traded lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell, with the gain on the standard 10-year note hitting a three-month high.

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SUPPLY IMPROVES FURTHER

The NAR speculated that the upcoming Nov. 5 U.S. presidential election could be making prospective homeowners hesitant to commit themselves. There is, however, no challenging evidence that the election is influencing buying decisions.

Residential property subtracted from gross domestic product in the second quarter. Growth estimates for the third quarter are as high as a 3.4% rate. The economy grew at a 3.0% pace in the April-June quarter.

“With mortgage rates backing up lately, a broad-based recovery in the residential housing sector is likely to receive longer than expected,” said Christopher Rupkey, chief economist at FWDBONDS.

Housing inventory increased 1.5% to 1.39 million units last month, the highest since October 2020. Supply surged 23.0% from one year ago. Nonetheless, supply is below the 1.8 million units seen before the COVID-19 pandemic.

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Despite the improving supply, the median existing home worth increased 3.0% from a year earlier to $404,500 in September, the highest for any September. Home prices rose in all four regions. About 20% of the homes were sold above their listing worth.

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At September’s sales pace, it would receive 4.3 months to exhaust the current inventory of existing homes, the highest since May 2020 and up from 3.4 months a year ago. A four-to-seven-month supply is viewed as a well equilibrium between supply and demand.

Properties typically stayed on the trade for 28 days in September compared to 21 days a year ago. First-period buyers accounted for 26% of sales versus 27% a year ago.

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That distribute remains below the 40% that economists and realtors declare is needed for a robust housing trade.

All-liquid assets sales made up 30% of transactions, up from 29% a year ago. Distressed sales, including foreclosures, represented only 2% of transactions, virtually unchanged from last year.

Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci