Housing Market Frozen as Buyers Go on Strike, Sellers Hope for Recovery
The housing market in the United States is currently experiencing a freeze, with buyers going on strike and sellers desperately hoping for a recovery. According to data from the National Association of Realtors (NAR), the median price of existing single-family houses, condos, and co-ops dropped to $382,600 in December 2023, marking a 7.5% decline from the peak in June of the same year. This is the first time since the Housing Bust that the seasonal high in June was lower than the previous year’s seasonal high.
In an unusual turn of events, prices have been consistently dropping every month since June. Typically, there would be upticks and flat spots in the housing market during the October to December period. However, in 2022 and 2023, prices fell continuously during this period. This downward trend is a clear indication of the frozen state of the housing market.
The demand for existing homes has also taken a significant hit. In December, the seasonally adjusted annual rate of sales plummeted to 3.78 million, the lowest since the worst two months of the Housing Bust in 2010. The entire year of 2023 saw sales decline to 4.09 million, making it the worst year in NAR’s data history dating back to 1995.
Comparing sales to prior Decembers reveals a bleak picture:
– Sales from 2022 decreased by 6.2%.
– Sales from 2021 dropped by a staggering 37.9%.
– Sales from 2020 declined by 43.2%.
– Sales from 2019 saw a decrease of 31.6%.
– Sales from 2018 fell by 24.4%.
To make matters worse, actual sales (not seasonally adjusted) fell by 42% in December 2023 compared to the same month in 2021. The low months for closed sales are typically January and February, reflecting the lull in deals over the holidays. June is usually the peak month for closed sales, as it reflects deals made during the end of the “spring selling season” in April and May. However, closed sales decline in the second half of the year.
The months’ supply of homes, which indicates the number of months it would take to sell all available inventory at the current sales pace, reached 3.2 months in December. This is the highest level for any December since 2018 when a surge in mortgage rates due to Federal Reserve rate hikes slowed down the housing market. The increase in months’ supply can be attributed to sales collapsing while sellers were still waiting for a recovery.
Active listings, which represent inventory minus homes listed as “sale pending,” typically drop sharply in November and December as sellers withdraw their homes from the market before the holidays. However, in November 2023, active listings rose, and in December, they only experienced a slight dip. At 714,000, active listings were the highest for any December since 2019. The difference between 2019 and 2023 has been shrinking each month since May, with active listings in May 2023 being 50.7% below May 2019. By December, the difference had reduced to 30.9%.
New listings of existing homes usually decrease in the second half of the year, especially leading up to the holidays. However, in the second half of 2023, new listings fell less than normal, and the gap to pre-pandemic years narrowed. In December 2023, new listings were even higher than the previous year, and the difference to 2019 narrowed to just 11.8%, down from over 30% in May and April 2023.
The median days on the market, which measures how long it takes for homes to be sold or withdrawn from the market, jumped to 61 days in December. This is the highest level since March and reflects the reluctance of sellers to lower their prices or accept less favorable offers.
The current state of the housing market can be described as frozen. Prices have reached unsustainable levels, causing buyers to go on strike. The collapse in demand has left sellers hoping for a recovery, believing that this situation will eventually pass. However, homebuilders have taken a different approach. They have adjusted to the market by building smaller houses with fewer amenities and selling them at lower prices. Additionally, they are buying down mortgage rates and offering other incentives to attract buyers. As a result, new home sales have remained relatively stable, diverting buyers away from existing homes.
While sellers continue to wait for a turnaround, it remains uncertain when the housing market will thaw and regain its momentum. Until then, both buyers and sellers must navigate through these challenging times, hoping for a brighter future in the real estate landscape.
