U.S. Existing Home Sales Retreat in December, Marking Worst Year for Housing Market in Decades
The U.S. housing market experienced a setback in December, capping off what has been the worst year for the industry in nearly three decades. According to the National Association of Realtors (NAR), existing home sales dropped by 1% in December compared to the previous month, reaching an annual rate of 3.78 million units. This decline marks the slowest pace of sales since August 2010 and the lowest level of sales since 1995.
Lawrence Yun, NAR’s chief economist, believes that this dip in sales could be the turning point for the housing market. He states, “The latest month’s sales look to be the bottom before inevitably turning higher in the new year.” Yun attributes this potential rebound to the significant decrease in mortgage rates over the past two months and the expected increase in inventory in the coming months.
At the end of December, there were approximately 1 million homes available for sale, which is an 11.5% decrease from the previous month but a 4.2% increase from the same time last year. The decline in inventory has contributed to an increase in prices, with the median price of an existing home sold in December reaching a record high of $389,800.
Despite the sluggish sales, Yun points out that homeowners have still benefited from rising housing wealth. He states, “Despite sluggish home sales, 85 million home-owning households enjoyed further gains in housing wealth.” However, Yun also warns that the rapid rise in home prices over the past three years is unsustainable and could lead to a greater divide between those who can afford homes and those who cannot.
In terms of market activity, homes sold on average within 29 days last month, slightly longer than the 25 days recorded in November and 26 days in December 2022. Prior to the COVID-19 pandemic, homes typically remained on the market for about a month before being sold.
The current supply crunch in the housing market is primarily driven by the significant increase in mortgage rates over the past year. Many sellers who locked in low mortgage rates before the pandemic are hesitant to sell their homes with rates at such high levels, limiting options for potential buyers. However, borrowing costs have started to decrease in the past month as investors believe that the Federal Reserve has concluded its aggressive interest-rate hike campaign.
Currently, rates on the popular 30-year fixed mortgage hover around 6.6%, according to Freddie Mac. Although this is a decrease from the peak rate of 7.79% in October, it remains well above the pre-pandemic average of 3.9%.
In conclusion, the U.S. housing market faced challenges in December, resulting in the worst year for the industry in decades. However, experts remain optimistic that the market will rebound in the new year due to lower mortgage rates and an expected increase in inventory. The supply crunch caused by high mortgage rates has limited options for buyers, but recent decreases in borrowing costs offer hope for a more balanced market. As the housing market continues to evolve, it is crucial to monitor these trends and their impact on homeownership and affordability.
