The National Association of Realtors (NAR) reported sales of existing homes turned down again in September, falling 3.0% to a seasonally adjusted annual rate of 4.91 million in September, after an 8.4% gain in August. Existing home sales have been somewhat volatile this year, but for the most part have remained in the neighborhood of an annual rate of 5 million units since the beginning of the year. Relative to September 2010, existing home sales are 11.3% higher, but the year-over-year gain is notably smaller than previous months – down from 19.3% in August and 21.0% in July.

Results were mixed across housing types and regions. Single-family home sales declined 3.6% to 4.33 million units, while condominium and co-op sales rose 1.8% to 580,000 units. By region, existing home sales rose 2.6% in the Northeast to an annual rate of 790,000 units; but slipped 0.9% in the Midwest to 1.09 million units; fell 2.6%  in the South to 1.89 million units and dropped 8.8% the West sales to 1.14 million units.

The influence of investors was again noticeable, with investors’ share of home purchases slipping to 19% in September from 22% in August. Investor sentiment has been driving the market over the past year, with home sales shadowing changes in investors’ share of home purchases. The declining investors’ share may be responding to a smaller number of distressed sales, with the share of distressed sales slipping to 30% of home sales in September, from 31% in August. The NAR previously suggested that investors take advantage of their cashed up position in the current market, mainly purchasing undervalued distressed homes that they either turn-over for a short-term profit or convert to rental housing.

The NAR again expressed their concern at the high rate of contract failures, noting that “contract failures were reported by 18% of NAR members in September,” … “double the level of September 2010.” Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses. The NAR imply that contract failures are a key constraint on home sales in the current market, in light of the historically high affordability conditions generated by the record low 4.11% average commitment rate on a 30-year conventional fixed-rate mortgage in September.