The shortage of homes available on the U.S. market has put a damper on buyers’ enthusiasm, resulting in fewer tours and offers in October, according to a report released Tuesday.
The Redfin Housing Demand Index, compiled by national real estate brokerage Redfin, declined 3.5% to a seasonally adjusted level of 100 last month.
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A reading of 100 represents the historical average for the three-year period from January 2013 to December 2015, meaning that current housing demand is at recent historical norms, according to Redfin.
In October, the number of Redfin customers requesting home tours fell 3.7% compared to September, and the number of customers writing offers on homes fell 5.9%. Both of these measures had posted double-digit increases between August and September.
Weakening demand was likely to be caused by a shortage of homes available on the market. Across the 15 metro areas tracked by the Redfin Housing Demand Index, the number of homes listed in October was 9.5% lower than a year earlier. Compared with September, the housing inventory dropped by 5.6%.
The Denver metro area in particular has had a dearth of housing inventory. The number of homes for sale in the Colorado city was down 22.3% compared to last year. Overall, the Redfin Demand Index in Denver was at a level of 102, down from 113 in September.
Meanwhile, Phoenix, Arizona, posted the largest month-over-month increase in demand, up 28% to 105 in October.
Demand fell the most in San Diego, California, where the Demand Index dropped 21% to 87 in October.
In Chicago, homebuyer demand was relatively tepid in October, with a Housing Demand Index level of 91, but agents say activity may be coming back up. "Since the election, I’ve been extremely busy helping clients make offers and get under contract," said Niko Voutsinas, a Redfin agent based in Chicago.
"Some people are a little bit upset about mortgage rates increasing, but most are still pushing forward. Buyers feel the rates will only continue to rise, so they might as well try to buy now, especially before the frenetic spring market," he said.
Demand for Luxury Homes Lagging Behind
In its quarterly report published earlier this month, Redfin also found that demand for luxury homes has cooled.
While the demand index looks at metro-level data at 15 metro areas, the luxury data looks at city-level data in more than 1,000 cities across the U.S. Redfin defines a home as luxury if it is among the top 5% most expensive homes sold in the city in each quarter.
In the third quarter of 2016, luxury home prices rose 1.4% compared to last year, to an average of $1.6 million. For seven consecutive quarters, price growth in the high-end segment has lagged compared to the bottom 95% of the market.
"Demand for luxury homes has lagged [behind] the rest of the market all year, and this is a trend we expect to continue in 2017 as demand continues to shift from well-heeled investors to first-time buyers in search of starter homes," said Nela Richardson, Redfin's chief economist.
More restrictive immigration policies under President-elect Donald Trump’s administration could have a chilling effect on some luxury markets, particularly those along the coasts where foreign buyers are more active, said Ms. Richardson.
On a market-specific level, Phoenix is poised to attract more luxury buyers than other major cities. "Most luxury buyers there are looking for a place to live full-time, not just an investment. We also might see demand to Phoenix increase from Californian and Canadian retirees increasingly flocking to warmer southern cities," said Ms. Richardson.
Write to Fang Block at fang.block@dowjones.com