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U.S. existing home sales fall, price appreciation slows

* Home sales fall 1.9 percent in September

* August sales pace revised down sharply

* Median home price up 11.7 percent from year-ago

By Lucia Mutikani

WASHINGTON, Oct 21 (Reuters) - U.S. home resales fell in

September and prices cooled as higher mortgage rates took the

edge off the housing market recovery.

The National Association of Realtors said on Monday that

sales of previously owned homes fell 1.9 percent last month to

an annual rate of 5.29 million units.

At the same time, the median price rose 11.7 percent in

September from a year ago to $199,200. While that was the 10th

straight month of double-digit gains, it was the smallest

increase since April.

"This softening had been expected in response to the

increase in mortgage rates that began in May," said Daniel

Silver, an economist at JPMorgan in New York.

The NAR said a combination of high home prices, barely

rising salaries and higher mortgage rates was hurting

affordability, which hit a five-year low in September according

to its gauge. The trade group said sales probably peaked in July

and August.

August sales were revised to a 5.39 million rate, unchanged

from July, well below the 5.48 million rate previously


Last month's sales drop adds to other indicators, such as

pending contracts to buy previously owned homes and home

builders' confidence, that have suggested a run-up in mortgage

rates is starting to slow the housing market recovery.

Interest rates have risen sharply since May on expectations

the Federal Reserve would start cutting back on its monthly bond

purchases this year, with the 30-year fixed mortgage rate

surging nearly a full percentage point.

It hit 4.49 percent in September, the highest since July

2011, according to Freddie Mac.

The Fed surprised markets last month by sticking to its $85

billion per month bond-buying pace. In doing so, it cited the

increase in mortgage rates. Still, the central bank is widely

expected to start tapering its purchases by early next year.


Economists said they expected home resales to decline again

in October in part because a 16-day partial government shutdown

had hurt consumer confidence and likely delayed the processing

of mortgages backed by the Federal Housing Administration.

Sales in coming months are also expected to be hampered by

increases in flood insurance rates.

Despite these headwinds, economists said the housing market

recovery remained intact.

"The housing market is not faltering, it's just that the

rapid improvement has been stunted," said Joel Naroff, chief

economist at Naroff Economic Advisors in Holland, Pennsylvania.

"That is not a terrible thing as many were worried about

another bubble being formed. I still think the sector has a long

way to go."

While home resales rose 10.7 percent from a year ago, the

increase was the smallest in five months.

Homes are also not selling as fast as they did in the

summer. A home's median time on the market in September was 50

days. That was up from 43 days in August, but down from more

than 70 days a year ago.

First-time buyers accounted for 28 percent of the

transactions, far below the 40 percent to 45 percent that

economists and real estate professionals view as ideal.

Investors, who have been the main drivers of sales, bought

19 percent of the homes in September, with almost three quarters

paying in cash.

But there was a silver lining in the report, with distressed

properties - which can depress prices because they typically

sell at deep discounts - accounting for only 14 percent of sales

last month. That compared to 24 percent a year ago.

The number of unsold homes on the market was unchanged at

2.21 million in September, representing a 5.0 months' supply.

That compared to 4.9 months' worth in August. A 6.0 month's

supply is normally considered healthy.

"Higher mortgage rates may simply bring demand closer in

line with supply, slowing home price appreciation while leaving

the volume of sales relatively unimpaired," said Guy Berger, an

economist at RBS in Stamford, Connecticut.