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Existing-home sales declined in December, snapping a streak of three straight monthly gains, but overall sales for 2021 increased 8.5% to the highest level since 2006.
According to the National Association of Realtors, each of the four major U.S. regions saw sales fall in December on both a month-over-month and a year-over-year basis. Total existing-home sales — completed transactions that include single-family homes, townhomes, condominiums and co-ops — dropped 4.6% from November to a seasonally adjusted annual rate of 6.18 million in December. Sales also fell 7.1% from 6.65 million in December 2020.
"December saw sales retreat, but the pull back was more a sign of supply constraints than an indication of a weakened demand for housing," said Lawrence Yun, NAR's chief economist. "Sales for the entire year finished strong, reaching the highest annual level since 2006."
Yun, however, said he does expect existing-home sales to slow slightly in the coming months due to higher mortgage rates, but he noted that recent employment gains and stricter underwriting standards ensure home sales are in no danger of crashing. He forecasts rates to remain below 4% by year-end and for wages to hold firm due to a tight labor market.
"This year, consumers should prepare to endure some increases in mortgage rates," he 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 at the end of December amounted to 910,000 units, down 18% from November and 14.2% from a year ago (1.06 million). Unsold inventory sits at a 1.8-month supply at the present sales pace, down from 2.1 months in November and from 1.9 months in December 2020.
"We saw inventory numbers hit an all-time low in December," Yun said. "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."
Mike Fratantoni, senior vice president and chief economist for the Mortgage Banker’s Association, said builders are aware of the need for new inventory.
“Wednesday’s report on housing starts revealed that there are almost 770,000 homes under construction.” Fratantoni said. “This new supply is clearly needed, as move-up buyers purchasing new homes will free up existing inventory for the wave of first-time buyers. We continue to expect that 2022 will see growth in home sales, decelerating home-price growth, and a record volume of purchase mortgage originations.”
He added that a significant share of sales were by first-time buyers. “We fully expect that this share will remain high as the largest cohort of millennials approach the peak ages of buying their first home. This will support housing demand for the next several years.”
First-time buyers were responsible for 30% of sales in December, up from 26% in November and down from 31% in December 2020. NAR's 2021 Profile of Home Buyers and Sellers — released in late 20214 — reported that the annual share of first-time buyers was 34%.
"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."
Individual investors or second-home buyers, who make up many cash sales, purchased 17% of homes in December, up from 15% in November and up from 14% in December 2020. All-cash sales accounted for 23% of transactions in December, down from 24% in November, and up from 19% from December 2020.
The median existing-home price for all housing types in December was $358,000, up 15.8% from December 2020 ($309,200), as prices rose in each region. The South witnessed the highest pace of appreciation. This marks 118 straight months of year-over-year increases, the longest-running streak on record.
- Existing-home sales in the Northeast fell 1.3% in December, registering an annual rate of 750,000, a 15.7% decrease from December 2020. The median price in the Northeast was $384,600, up 6.3% from one year ago.
- Existing-home sales in the Midwest slid 1.3% to an annual rate of 1,500,000 in December, a 2.6% decline from a year ago. The median price in the Midwest was $256,900, a 10.0% climb from December 2020.
- Existing-home sales in the South retreated 6.3% in December, posting an annual rate of 2,700,000, a drop of 5.3% from one year ago. The median price in the South was $323,000, a 20.2% ascension from one year prior.
- Existing-home sales in the West decreased 6.8%, reporting an annual rate of 1,230,000 in December, down 10.2% from one year ago. The median price in the West was $507,100, up 8.4% from December 2020.
The National Association of Realtors is America's largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.