A “Sold Out” sign stands outside a house after a snowfall in Geneseo, Illinois.
Daniel Acker | Bloomberg | Getty Images
Closed sales of previously owned homes in December fell 4.6% to a seasonally adjusted annual rate of 6.18 million units, according to the National Association of Realtors. Sales fell 7.1% year over year.
However, December ended a year of strong sales, most of which were fueled by the pandemic and the largest generation, millennials, who are ahead of their home buying years. Full-year 2021 sales were 6.12 million, an 8.5% increase over 2020. Sales were the strongest year since 2006.
Sales would have been higher had it not been for the incredibly low supply. There were only 910,000 homes for sale at the end of December, down 14.2% from December 2020. At the current sales pace, that supply represents 1.8 months. A balanced market between buyers and sellers is usually on offer for 4-6 months. Both total supply and month supply have been at all-time lows in NAR’s inventory count, since tracking began in 1982.
“Home builders have already made strides in 2022 to increase supply, but reversing gaps like the ones we saw recently will take years to correct,” said Lawrence Yun, Realtors chief economist.
Low supply continued to put pressure on prices. The median price of an existing home sold in December was $358,000, an increase of 15.8% over December 2020. This is a slight acceleration of home price gains, meaning that demand is still very strong.
By price category, sales continue to be stronger at the higher end of the market, simply because there is so much on offer out there. Sales of homes between $100,000 and $250,000 were down 23% in December compared to last December, while sales of homes between $750,000 and $1 million were up 32%. Sales of homes over $1 million are up 38%.
For the full year, the median price was $346,900, a record high and the fastest price growth since 1999. With the price up 17% year over year, the average homeowner gained $50,200 in housing wealth in the past year alone.
Strong demand was also evident in the average number of days it took to sell a home in December, just 19, which is considered very fast. In December 2020, the number of days on the market was 21. All cash purchases remained high at 23% of total sales. Investors are also staying active, accounting for 17% of December sales, up from 14% a year earlier.
Home prices have risen over the past two years, in part due to very low interest rates. This may be about to change. The average price on a 30-year fixed-rate mortgage in October and November, when most December sales contracts were signed, was about 60 basis points lower than it is today. Mortgage rates have risen rapidly over the past month, and some expect this to ease home prices going forward.
First-time buyers appear to be returning to the market, making up 30% of sales after a weaker 24% showing in November. These buyers may be impulsive, worried that mortgage rates will move higher, and may end up with exorbitant rates.
“We expect mortgage rates to continue to rise, and some people may want to go up as rates go up more, but others may be priced in,” Yoon said. “But higher rates usually lower home sales.”