Existing Home Sales Tumbled Last Year as Interest Rates Surged

Sales of previously owned homes dropped 1.5% in December from the previous month, according to the National Association of Realtors.

The move marks the 11th straight drop in home sales amid much higher mortgage rates, which began rising last spring and had more than doubled by fall. Extremely high prices, driven by excessive demand during the first years of the pandemic, weakened affordability even further and caused supply to fall sharply.

Higher Mortgage Rates to Blame

“December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” said Lawrence Yen, chief economist for the Realtors. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”

Mortgage rates have fallen a full percentage point since their high last October, but they are still roughly double what they were one year ago.

Sales Figures

Sales ended the year at a seasonally adjusted, annualized pace of 4.02 million units, which was 34% lower than December 2021. It is the slowest pace since November 2010, when the nation was struggling through a housing crisis brought on by faulty subprime mortgages.

Additionally, total sales for the year were down 17.8% from 2021.

Inventory Drop Supporting Prices

The report showed that at the end of December, total housing inventory fell 13.4% from November to 970,000 units. It was, however, up 10.2% from the previous December. Unsold inventory is at a 2.9-month supply at the current sales pace, down from 3.3 months in November but up from 1.7 months in December 2021.

Low supply continues to support prices to some extent, but the gains are shrinking compared with a year ago, according to CNBC. The median price of an existing home sold in December was $366,900, up 2.3% from the year before. It is still the highest price recorded for December, but annual price gains had been in the double-digits last summer, CNBC reported.

Sellers Turned-Off by Falling Prices and Weaker Demand

“Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year,” added Yun.

The trouble, however, is that sellers are not entering the market, given falling prices and weaker demand. The total inventory is higher than a year ago because homes are sitting on the market longer. New listings in January are down year over year, the report showed.

“Evaporating demand has ended the strong sellers’ market of the past several years, and still-falling home sales tell us that many buyers are still not able to afford a purchase or not yet convinced that the market is tilted sufficiently in their favor to move forward.

The housing market is entering “nobody’s market” territory as buyers and sellers remain largely in a stalemate,” said Danielle Hale, chief economist for Realtor.com.

Odds and Ends

The existing home sales report also revealed that first-time buyers only made up 31% of December sales versus an historical norm of 40%.

Homes are sitting on the market an average of 26 days, up from 24 days in November and 19 days in December 2021.

Additionally, all-cash sales rose to 28% of transactions from 23% the year before and investors made up 16% of sales, slightly down from 17% the year before.

Finally, sales of homes priced above $1 million were down 45% year over year.