WASHINGTON (Reuters) -U.S. existing home sales increased to a seven-month high in September, but rising economic uncertainty and a stalled labor market could limit the boost from easing mortgage rates.

Home sales rose 1.5% last month to a seasonally adjusted annual rate of 4.06 million units, the highest level since February, the National Association of Realtors said on Thursday.

Economists polled by Reuters had forecast home resales would advance to a rate of 4.06 million units. Sales increased in the Northeast, South and West regions, but declined in the Midwest. Home sales jumped 4.1% on a year-over-year basis. 

"As anticipated, falling mortgage rates are lifting home sales," said Lawrence Yun, the NAR's chief economist. "Improving housing affordability is also contributing to the increase in sales."

The average rate on the popular 30-year fixed-rate mortgage is near a one-year low of 6.27% after surging to 7.04% in January, data from mortgage finance agency Freddie Mac showed. Mortgage rates have eased after the Federal Reserve resumed cutting interest rates to shore up the labor market. 

A U.S. government shutdown resulting from a funding standoff in Congress has delayed the release of official economic data, including the closely watched employment report for September. But independent reports, including the U.S. central bank's "Beige Book," have sketched a picture of muted hiring. Economists have blamed the lack of hiring on economic uncertainty stemming from import tariffs.

Some realtors also have said the shutdown is delaying contract closings as prospective buyers in flood-prone regions are unable to get necessary insurance. The National Flood Insurance Program, which helps to provide coverage for properties in high-risk areas, has suspended services during the shutdown.

The inventory of existing homes shot up last month by 14.0% to 1.550 million units from a year ago. It, however, remains below the levels that prevailed before the COVID-19 pandemic.

MEDIAN HOME PRICE INCREASES     

The median existing home price last month increased 2.1% from a year ago to $415,200. At September's sales pace, it would take 4.6 months to exhaust the current inventory of existing homes, up from 4.2 months a year ago. 

A four-to-seven-month supply is viewed as a healthy balance between supply and demand.

Properties typically stayed on the market for 33 days last month, compared to 28 days a year ago. First-time buyers accounted for 30% of sales, up from 26% a year ago. Economists and realtors say a 40% share in this category is needed for a robust housing market.

All-cash sales constituted 30% of transactions, unchanged from a year ago. 

Distressed sales, including foreclosures, made up 2% of transactions, holding steady from a year ago.