That led existing home sales to fall 0.7% last year to 4.06 million — the weakest showing for home sales since 1995 and edging out the terrible year for sales in 2023, the National Association of Realtors said Friday.
Even in the midst of a sales slump, a dearth of homes on the market and rising mortgage rates gave sellers an edge over buyers, helping drive up the national median home price for all of last year to an all-time high $407,500, an increase of 4.7% from a year earlier.
“How is it possible that home sales can be this low, considering that the U.S. population has increased by more than 70 million over this time period from 1995 to today?” asked Lawrence Yun, the NAR’s chief economist. “One can partly answer that question because of the affordability issue. Record-high home prices, mortgage rates having risen, but also lack of inventory.”
The U.S. housing market has been in a sales slump dating back to 2022, when mortgage rates began to climb from pandemic-era lows. The average rate on a 30-year mortgage surged to a 23-year high of nearly 8% in October 2023 and briefly fell to a 2-year low last September, but has been mostly hovering around 7%, according to mortgage buyer Freddie Mac.
The buying power of Americans now facing higher costs to borrow money for homes that have soared in value has been significantly stunted. With so few homes up for sale, millions of would-be homebuyers have found themselves on the sidelines.
At the end of December, there were just 1.15 million homes on the market, NAR said. While that was up 16.2% from a year earlier, the inventory remained well below the annual historical average of about 1.98 million, according to data going back to 1999.
The available inventory at the end of last month amounts to a 3.3-month supply, going by the current sales pace. In a more balanced market between buyers and sellers, there is a 4- to 6-month supply.
“This means that the problems in the U.S. housing market continue to worsen in terms of availability of homes for sale and the upward pressure on home prices,” Eugenio Aleman, chief economist at Raymond James, wrote in a research note.
Many factors have contributed to the housing shortage, including more than a decade of below-average new home construction and homeowners hanging on to their properties longer. And while President Donald Trump made increasing the housing supply one of his election campaign platforms, there are no quick fixes.
“Over the past decade, the U.S. has averaged about 5.2 million home sales annually,” said Lisa Sturtevant, chief economist at Bright MLS. “It is going to take years before we are back at that level, maybe not even until the 2030s. The lack of inventory is the key constraint.”
A sharp drop in the mortgage rate boosted the purchasing power of Americans in 2020 and 2021. While many economists predict that the average rate on a 30-year mortgage will ease this year, they generally don't expect it to fall below 6%, about twice what it was five years ago.
When mortgage rates ease, they can encourage home shoppers. A pullback in rates last fall helped home sales increase on a monthly basis in the last three months of the year.
Home sales in December rose 2.2% from the previous month on a seasonally adjusted basis to a 4.24 million annual pace, NAR said. That topped the 4.2 million pace forecast by analysts polled by FactSet. Sales rose 9.3% in December versus the same month last year.
The median home sales price rose for the 18th consecutive month in December to $404,000, up 6% from a year earlier.
Limited inventory, especially in the more affordable price range of a given market, helps drive prices higher. That’s one reason many first-time homebuyers, who don’t have any home equity to put toward their down payment, continue to struggle.
They accounted for 31% of all homes sold last month, up from 30% in November and 29% in December 2023. However, the annual share of first-time buyers was 24%. It's been 40% historically.