The housing market has experienced significant shifts and challenges in recent times, with sales of previously owned homes declining and prices reaching record highs. In this article, we will explore the latest data from the National Association of Realtors (NAR) and analyze the implications for both buyers and sellers. Additionally, we will examine the impact of mortgage rates, inventory levels, and investor activity on the housing market.
In December, sales of previously owned homes fell by 1% compared to November. The seasonally adjusted annualized rate stood at 3.78 million units, marking the lowest level since August 2010. On a year-over-year basis, sales were also lower in all regions. The Northeast region saw sales remaining unchanged, while the Midwest experienced a 4.3% decline. In the South, sales were down by 2.8%, but there was a rebound of 7.8% in the West.
The count of home closings in December reflects the contracts likely signed a few months earlier when mortgage rates were considerably higher than the current rates. In October, the average rate for a 30-year fixed loan rose to around 8% before falling to the 7% range in November. As of now, the rate stands at 6.89%. Lawrence Yun, NAR’s chief economist, anticipates sales to rebound in the new year due to the meaningful decline in mortgage rates and the expected increase in inventory.
Inventory levels play a vital role in shaping the housing market, and they plummeted by 11.5% from November to December. However, there was a 4.2% increase from December 2022. By the end of December, there were 1 million homes for sale, resulting in a 3.2-month supply at the current sales pace. A balanced market typically has a 6-month supply.
With the tightening supply, home prices have surged. The median price of a home sold in December reached $382,600, indicating a 4.4% increase compared to the same period in 2022. This marked the sixth consecutive month of year-over-year price gains. For the full year, the median price reached a record-high of $389,800. The soaring prices pose a challenge for buyers, particularly those seeking properties below the median price point.
The share of all-cash sales rose to 29% in December, up from 27% in November. This increase may be attributed to individual investors, who consistently make up a significant portion of all-cash sales. However, their activity dipped slightly, with investor purchases accounting for 16% of homes in December, compared to 18% in November. Realtor.com’s recent study revealed that both higher prices and financing costs have constrained investor activity throughout 2023.
The pullback in investor activity may have positive implications for buyers. With less competition from investors, potential first-time homebuyers can approach the market with optimism, despite the challenges of purchasing properties below the median price point. However, it is worth noting that first-time buyers still face struggles, constituting only 29% of December sales compared to 31% the previous year. Historically, they make up 40% of the market.
The recent data on home sales, inventory levels, and market trends shed light on the state of the housing market. While sales declined in December, there are indications of a potential rebound in the new year, driven by lower mortgage rates and an anticipated increase in inventory. The tightening supply continues to drive up home prices, posing challenges for buyers, particularly first-time buyers aiming for properties below the median price point. The decrease in investor activity may offer some respite to buyers, but the market remains competitive. As we move further into 2024, the housing market will undoubtedly continue to evolve, and stakeholders must remain attentive to the latest trends and developments.
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