FILE PHOTO: A "For Sale" sign stands at a house in Miami, Florida, U.S. April 16, 2025. REUTERS/Marco Bello/File Photo
FILE PHOTO: A drone view shows construction personnel working on a multi-home residential project by Shea Homes in Encinitas, California, U.S. July 21, 2025. REUTERS/Mike Blake/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. existing home sales increased to a seven-month high in September, but economic uncertainty and a stalled labor market could limit an anticipated boost from easing mortgage rates.

The rise in home resales last month, which was reported by the National Association of Realtors on Thursday, was concentrated in the upper end of the housing market as higher-income households enjoy strong wealth gains thanks to a robust stock market.

Though mortgage rates have declined to one-year lows and housing inventory has improved, economists said affordability remained a challenge for many prospective buyers, especially lower and middle-income households. That problem is being compounded by a hazy economic outlook and lack of hiring by employers against the backdrop of import tariffs.

"We expect existing home sales to move sideways through the end of this year and into early next before improving over the course of 2026 as mortgage rates fall further and the economy and labor market get back on firmer footing," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Home sales rose 1.5% last month to a seasonally adjusted annual rate of 4.06 million units, the highest level since February, the NAR said. The increase was broadly in line with economists' expectations. Home resales increased in the Northeast, South and West regions, but declined in the Midwest.

Home resales jumped 4.1% on a year-over-year basis.

Sales are counted at the closing of a contract. Sales in September likely reflected contracts signed in July and August, when mortgage rates started easing in anticipation of the resumption of Federal Reserve interest rate cuts.

The average rate on the popular 30-year fixed-rate mortgage is at a one-year low of 6.19% after surging to 7.04% in January, data from mortgage finance agency Freddie Mac showed on Thursday. The decline has not fueled strong demand for home purchase loans. Homeowners instead are taking advantage of the decrease to refinance their loans at a lower mortgage rate.

"Affordability has improved from its worst levels but remains close to the unfavorable readings that have prevailed for the past few years," said Stephen Stanley, chief U.S. economist at Santander.

MORE EXPENSIVE HOMES ARE SELLING

Sales of homes priced $1 million and above accelerated 20.2% from a year ago, while those in the $750,000-$1 million price bracket increased 14.4%. In contrast, home sales in the $100,000-$250,000 price range rose only 6.0%.

Housing accounts for less than 5% of the U.S. economy. The report shed little light on the economy's health amid a data blackout caused by the shutdown of the U.S. government. The U.S. central bank's "Beige Book" report last week described economic activity as little changed during the weeks up to October 6 and demand for labor "generally muted."

Some realtors also have said the shutdown is delaying contract closings as prospective buyers in flood-prone regions are unable to get necessary insurance.

The National Flood Insurance Program, which helps to provide coverage for properties in high-risk areas, has suspended services during the shutdown.

The inventory of existing homes shot up last month by 14.0% to 1.550 million units from a year ago. It remains, however, below the 1.8 million units that prevailed before the COVID-19 pandemic. Still, increased supply means more choice for buyers and room for price negotiation.

A report from Redfin showed there were 36.7% more home sellers in the market than buyers, a near-record gap.

The median existing home price last month increased 2.1% from a year ago to $415,200. At September's sales pace, it would take 4.6 months to exhaust the current inventory of existing homes, up from 4.2 months a year ago.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. Properties typically stayed on the market for 33 days last month, compared to 28 days a year ago.

First-time buyers accounted for 30% of sales, up from 26% a year ago. Economists and realtors say a 40% share in this category is needed for a robust housing market. All-cash sales constituted 30% of transactions, unchanged from a year ago.

Distressed sales, including foreclosures, made up 2% of transactions, holding steady from a year ago. Economists are keeping an eye on distressed sales as some lower-income households are struggling to make automobile loan payments.

(Reporting by Lucia Mutikani; Editing by Paul Simao)