By Lucia Mutikani

WASHINGTON, Dec 19 (Reuters) – U.S. existing home sales increased modestly in November amid an easing in mortgage rates, but economic uncertainty is keeping potential buyers on the sidelines.

The report from the National Association of Realtors on Friday also showed the inventory of previously owned homes fell from October to an eight-month low, limiting choices for those looking to buy. Though housing supply typically decreases heading into winter, inventory growth has slowed on a year-over-year basis, likely in response to sluggish demand. But limited supply could prevent an outright decline in home prices.

“Big headwinds remain for housing market activity,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. “The recovery in the supply of existing homes for sale seems to have stalled over the past few months. The weak labor market will limit the number of households that are confident enough to move, and measures of affordability remain stretched.”

Home sales increased 0.5% last month to a seasonally adjusted annual rate of 4.13 million units, the NAR said. Economists polled by Reuters had forecast home resales would rise to a rate of 4.15 million units. 

Sales surged 4.1% in the Northeast, which accounts for a small share of the housing market. They increased 1.1% in the densely populated South, but fell 2.0% in the Midwest, regarded as the most affordable region. Sales were unchanged in the West.

Home sales declined 1.0% in November on a year-over-year basis.

The rate on the popular 30-year fixed-rate mortgage plunged from 7.04% in mid-January to 6.19% at the end of November, data from mortgage finance agency Freddie Mac shows. It has, however, made no further improvement, averaging 6.21% this week.

Mortgage rates track the benchmark 10-year U.S. Treasury yield.

The lower borrowing costs are being partially offset by a sluggish labor market, with the unemployment rate rising to more than a four-year high of 4.6% in November and annual wage growth running at its slowest pace since May 2021. With housing starts and new home sales reports for September still to be published – they were delayed by the recent 43-day federal government shutdown – economists said it was difficult to assess the housing market. 

Residential investment, which includes homebuilding and sales via brokers’ commissions, contracted in four of the last five quarters. The government is due to release its initial estimate of third-quarter gross domestic product next Tuesday.

NO MEANINGFUL TURNAROUND IN HOUSING

“The existing home sales figures suggest that the drop in mortgage rates in recent months has nudged demand up somewhat, but not by enough to signal a meaningful turnaround,” said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.

Economic concerns tied to the labor market and higher prices curbed the improvement in consumer sentiment in December, a separate report showed. The University of Michigan’s Surveys of Consumers said its Consumer Sentiment Index increased to 52.9 this month from 51.0 in November. That was, however, a downward revision from an earlier preliminary estimate of 53.3. 

“Despite some signs of improvement to close out the year, sentiment remains nearly 30% below December 2024, as pocketbook issues continue to dominate consumer views of the economy,” said Joanne Hsu, the director of the Surveys of Consumers.

Stocks on Wall Street were trading higher. The dollar gained versus a basket of currencies. U.S. Treasury yields rose.

The inventory of existing homes dropped 5.9% to 1.430 million units in November, the lowest level since March. Though inventory was up 7.5% from a year ago, the increase was smaller after double-digit gains in the prior months. At November’s sales pace, it would take 4.2 months to exhaust the current inventory of existing homes, up from 3.8 months a year ago.

“You cannot sell homes if you do not have a selection of homes to sell,” said Carl Weinberg, chief economist at High Frequency Economics.

The median existing home price last month increased 1.2% from a year ago to $409,200. The median number of days on the market for listed properties increased to 36 from 32 a year ago.

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

All-cash sales constituted 27% of transactions, up from 25% a year ago. Distressed sales, including foreclosures, made up 2% of transactions, holding steady from a year ago.

“The near-term outlook for housing remains relatively stagnant, with little reason to expect a permanent shift higher for sales until mortgage rates drop meaningfully from current levels,” said Ben Ayers, senior economist at Nationwide.

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