It was a good news/bad news kind of week for the U.S. housing market — as the National Association of Realtors reported that existing home sales in 2021 hit their highest point in approximately 15 years — but sales in December declined to end a run of three straight months of gains.
In 2021, existing-home sales totaled 6.12 million, an increase of 8.5% from the prior year and the highest annual level since 2006, according to a NAR report released on Jan. 20. In December, existing home sales fell 4.6% to a seasonally adjusted annual rate of 6.18 million units.
Each of the four major U.S. regions saw sales decline in December on both month-over-month and year-over-year bases. Economists polled by Reuters expected December sales of 6.44 million units.
The main culprit was a lack of inventory rather than a lack of demand, NAR officials said.
“December saw sales retreat, but the pull back was more a sign of supply constraints than an indication of a weakened demand for housing,” NAR Chief Economist Lawrence Yun said in a press release. “Sales for the entire year finished strong, reaching the highest annual level since 2006.”
He expects existing-home sales to slow slightly in the coming months because of higher mortgage rates, but also noted that recent employment gains and stricter underwriting standards ensure home sales are in no danger of crashing.
“This year, consumers should prepare to endure some increases in mortgage rates,” Yun said. “I also expect home prices to grow more moderately by 3% to 5% in 2022, and then similarly in 2023 as more supply reaches the market.”
Total Housing Inventory Down Significantly
Total housing inventory at the end of December came in at 910,000 units, down 18% from the previous month and 14.2% from a year earlier. Unsold inventory sits at a 1.8-month supply at the present sales pace, down from 2.1 months in November and 1.9 months in December 2020.
“We saw inventory numbers hit an all-time low in December,” Yun added. “Home builders have already made strides in 2022 to increase supply, but reversing gaps like the ones we’ve seen recently will take years to correct.”
The December median existing-home price for all housing types was $358,000, up 15.8% from the previous year. Prices rose in each region, with the South seeing the highest rate of appreciation.
First-time buyers were responsible for 30% of sales in December, up from 26% in November but down from 31% in December 2020.
“There was a significant surge in first-time buyers at the end of the year,” Yun said. “With mortgage rates expected to rise in 2022, it’s likely that a portion of December buyers were intent on avoiding the inevitable rate increases.”
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