By Sarah Chaney and Sharon Nunn 
 

WASHINGTON--Sales of previously owned U.S. homes declined in January, suggesting that fast-rising prices and tight inventory may be restraining buyer demand at the beginning 2018.

Existing-home sales fell 3.2% in January from the prior month to a seasonally adjusted annual rate of 5.38 million, the National Association of Realtors said Wednesday. Economists surveyed by The Wall Street Journal had expected sales to increase 0.7% to a 5.61 million annual rate.

Compared with a year earlier, sales in January were down 4.8%, the steepest annual decline since August 2014.

Lawrence Yun, the trade group's chief economist, said that low inventory is holding back sales.

"The interest is there, but (realtors) can just not close the deal because of the lack of inventory," Mr. Yun said.

The tax-code overhaul passed in December, among other things, limited deductibility of very large mortgages as well as state and local taxes, including property-tax bills. Mr. Yun said tax reform doesn't appear to be impacting home sales yet, as buying activity remains strong in expensive regions and prospective buyers express limited concern.

Home sales slowed in December, but 2017 as a whole was the strongest year for the housing market since the mid-2000s boom.

A shortage of available houses on the market has driven up prices in many regions. There was a 3.4 month-supply of homes on the market at the end of January, based on the current sales pace. Total housing inventory declined in January from a year earlier to 1.52 million existing homes for sale, the lowest January count since 1999 when the agency began tracking the data.

Several factors are converging to buttress home buying. The national unemployment rate in January was 4.1%, holding at a 17-year low. Gauges of household confidence remain elevated. Borrowing costs have risen in recent months but remain low by historical standards; the average interest rate on a 30-year fixed-rate mortgage in January was 4.03%, according to Freddie Mac.

Still, the limited inventory on the market is driving up home prices at a rapid pace, potentially blocking some would-be buyers.

The median sale price for an existing home in January was $240,500, up 5.8% from a year earlier.

News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

Write to Sarah Chaney at sarah.chaney@wsj.com and Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

February 21, 2018 10:15 ET (15:15 GMT)

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