WASHINGTON U.S. existing home sales dropped to a 13-year low in September as surging mortgage rates and tight supply combined to reduce affordability for many first-time buyers.

Existing home sales fell 2.0% last month to a seasonally adjusted annual rate of 3.96 million units, the lowest level since October 2010, the National Association of Realtors said on Thursday. They are counted at the closing of a contract and last month's sales likely reflected contracts signed in August, when the rate on the popular 30-year fixed mortgage vaulted above 7%.

Economists polled by Reuters had forecast home sales slipping to a rate of 3.89 million units. Sales dropped 1.1% in the South and decreased 4.1% in the Midwest. They rose 4.2% in the Northeast and slumped 5.3% in the West.

Home resales, which account for a big chunk of U.S. housing sales, declined 15.4% on a year-on-year basis in September.

"As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales," said NAR Chief Economist Lawrence Yun. "Higher mortgage rates are really hampering activity."

The market for previously owned homes had shown signs of stabilizing at lower levels.

Sales are likely to slump further, with a report from the Mortgage Bankers Association on Wednesday showing applications for loans to purchase a home plunged last week to levels last seen in 1995 as the average contract interest rate on a 30-year fixed-rate mortgage rose 3 basis points to 7.70%, the highest since November 2000.

Mortgage rates have risen in tandem with the yield on the benchmark 10-year Treasury note, which has spiked to more than a 16-year high, mostly because of expectations that the Federal Reserve will keep interest rates higher for longer in response to the economy's resilience. Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

There were 1.13 million previously owned homes on the market last month, down 8.1% from a year ago. At September's sales pace, it would take 3.4 months to exhaust the current inventory of existing homes, up from 3.2 months a year ago.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. The median existing house price increased 2.8% from a year earlier to $394,300, the highest ever for any September.

Properties typically remained on the market for 21 days in September, up from 19 days a year ago. Sixty-nine percent of homes sold in September were on the market for less than a month. First-time buyers accounted for 27% of sales, down from 29% a year ago. All-cash sales accounted for 29% of transactions compared to 22% a year ago.

Distressed sales, including foreclosures, represented only 1% of transactions, unchanged from the prior year.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)