Sales of previously occupied US homes slumped to the worst level in decades last year, as elevated rates and rising home prices deadlocked affordability.
Year-over-year sales of previously owned homes declined by 6% and came in weaker than predicted by economists polled by Bloomberg.
Existing home sales fell 1% last month from November to a seasonally adjusted annual rate of 3.7 million, the National Association of Realtors said Friday. That marked the lowest sales activity since August 2010, when 3.68 million sales were recorded.
The median home price jumped more than 4% year over year, marking the sixth straight month of annual gains. The median price of $382,600 was the highest for the month of December on record.
The data reflects how tough it was for first-time homebuyers to break into the market last year, as they dealt with a trifecta of challenges to affordability: tight inventory, climbing prices, and elevated mortgage rates.
With demand still high, that pool of buyers may continue to have a hard time in 2024.
"We can’t blame high mortgage rates for the deficit in transactions last year. In reality, demand for housing — and homeownership, in particular — has remained high, despite higher rates," Bright MLS chief economist Lisa Sturtevant said in a statement. "Prospective homebuyers have been shut out of the market by a lack of inventory. If there had been more listings on the market in 2023, we would have had more home sales."
On an annual basis, existing home sales fell to 4.09 million — the lowest level in 30 years — and were 19% lower than in 2022.
However, homebuying conditions weren’t as bad back in the 1990s compared to today’s market, the NAR said. Throughout the 1990s home sales were running at around 3.5 million, with sales hitting a mark of 3.8 million in 1995. Back then there were also roughly 266 million Americans in the US; today that figure has risen to 335 million.
In other words, there was still room for inventory growth in the 90s.
"Home sales would only hit 5 million in 1999 — that’s a reflection on sales and prices. Just like the price of movie tickets were much lower back then," Lawrence Yun, chief economist at NAR, said in a press conference.
The median sales price for a home in 1995 was $114,600, the NAR said. While people’s incomes were lower, home prices were much more affordable. By contrast, the median price for a home reached a record high of $389,800 in 2023.
In the '90s, the share of first-time buyers purchasing a home was also much closer to historic norms at 42% of the market. In 2023, the pool of first-time buyers averaged under 30%. Folks purchasing decades ago were also much younger, with the median age of a buyer in the 90s at 31, compared to 35-year olds today.
A man walks his dog by a "sale pending" sign that is posted in front of a home for sale in San Rafael, Calif. (Credit: Justin Sullivan, Getty Images) ·(Justin Sullivan via Getty Images)
"It was a better market at the time period for first-time homebuyers — the market being more affordable," Jessica Lautz, deputy chief economist at NAR, said in a press call.
Some of that struggle among entry-level buyers was reflected in the latest transaction data.
For instance, sales of more affordable homes priced under $100,000 were down 18% in December 2023. Homes priced between $100,000 and $250,000 also registered a decline of 17%, the NAR found.
Meanwhile, sales of homes priced from $250,000 to the half-million-dollar price point were down 7%, while sales of homes priced above $1 million were up 14%.
"Generally the lower price point's lack of inventory is holding back sales, while on the upper end inventories are showing up more compared to the year before," Yun said. "First-time buyers really struggle in getting into the market."
Sellers hold firm on prices
The shortage of inventory also continued to add pressure on home prices. All four regions of the country recorded year-over-year declines in resale activity in December, the NAR found.
In the Midwest, home sales came in at an annual rate of 900,000 last month, but remained nearly 10% lower than a year prior. The median price in the Midwest was $275,600, up 6% annually.
In the West, sales declined almost 8% from a month ago to an annualized rate of 690,000 in December. The median price in the West was $582,000, up almost 5% from last year at this time.
A sign is seen in front of a home for sale December in San Francisco. (Credit: Justin Sullivan, Getty Images) ·(Justin Sullivan via Getty Images)
Sales in the South fell 2.8% from November to an annual rate of 1.72 million in December, down 4.4% from a year ago. The median price in the South was $352,100, a year-over-year increase of 3.8%.
As for the Northeast, sales were unchanged from November but were down 10% from a year earlier.The median price in the Northeast was $428,100 — nearly 10% higher than a year ago.
"Sellers are holding firm on prices," Nicole Bachaud, Zillow senior economist, previously told Yahoo Finance. "Likely thanks to the slower paces of price growth helping sellers (and buyers) know what to expect when it comes to setting a price."
Some of those prices may ease however, as more inventory weaves its way into the market. According to separate data from Zillow, new listings ticked up in January but remained 14.5% below prepandemic levels.
"There is evidence that the ‘mortgage rate lock’ is losing its grip on sellers," Bachaud said. "Though the flow of new listings remains below prepandemic levels, they are trending closer to prepandemic norms. This could help boost inventory and provide a cushion for buyer demand."
The share of unsold existing homes at the end of December was 1 million units, up almost 12% compared to a month ago, NAR data showed. Overall, there was a 3.2-month supply of unsold inventory at the current sales pace. At least six months of inventory is considered a healthy market.
"Listings of existing homes will continue to remain low as current homeowners, many holding sub-3% mortgage rates, will be reluctant to move," Sturtevant said.
Despite the still-tight inventory of previously owned homes on the market, demand continued to pick up as lower rates lured some buyers and sellers back. Mortgage rates in December sank to an average 6.61%, hitting its lowest level in six months since May 2023.
According to the NAR, that put the typical monthly mortgage payment for a $400,000 home at $2,046. Rates haven’t budged much since, just this week rates were back to 6.60% — representing a monthly savings of roughly $257 compared to when rates reached a high point in October 2023. The historical norm for mortgage interest rates since 1971 is 7.74%.
"More and more buyers and sellers are accepting that rates in the mid- to upper-6’s maybe aren't so bad as we settle into the new norms of the market," Bachaud noted.
Homes sold last month remained on the market for an average 29 days, up from 25 days in November and 23 days in October. At least 56% of homes sold in December were on the market for less than a month.
First-time buyers made up 32% of sales in December, up from 31% in November and 28% in October 2023. Individual investors or second-home buyers — which make up most cash sales — purchased just 29% of homes last month, up from 18% in November, and up from 15% in October.
"As we move into 2024, there will be some existing homeowners who find that changing family or financial circumstances will compel them to sell, which should bring some additional options to buyers," Sturtevant said. "Overall, however, there will still be a demand-supply imbalance in the housing market well into 2024."
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
