U.S. Existing Home Sales Reach 10-Month High: What You Need to Know
The U.S. housing market has shown signs of recovery as existing home sales surged to their highest level in ten months as of December. According to the National Association of Realtors (NAR), home sales increased by 2.2% last month, resulting in a seasonally adjusted annual rate of 4.24 million units. This marks a significant uptick, indicating a rebound since February and a noteworthy 9.3% increase year-on-year—the largest hike since June 2021.
However, don’t let this positive news mislead you into thinking that the market is back to its pre-pandemic vibrancy. The reality is that many prospective buyers are still sitting on the sidelines due to persistently high mortgage rates and home prices, which are limiting further gains in the market.
Last year, a total of 4.06 million previously owned homes were sold, marking the lowest number since 1995. This makes the current uptick even more significant, given the long-term trend of declining sales.
Factors Influencing the Housing Market
Lawrence Yun, NAR’s chief economist, emphasized that this surge in sales is a recovery following a rather challenging market period. Key factors driving this improvement include job and wage gains, along with a slight increase in housing inventory. Yet, even with these positive indicators, industry experts are cautious about the sustainability of this growth.
A recent survey by mortgage finance giant Fannie Mae expects existing home sales to remain weak in the first half of the new year. It noted that new homes are now comparably priced with existing homes, and their availability could sway potential buyers. Currently, the popular 30-year fixed-rate mortgage is projected to average 6.7% in the first quarter, dipping marginally to 6.6% in the second quarter.
Mortgage Rates and Economic Conditions
In late 2023, mortgage rates experienced a spike, largely in response to increases in U.S. Treasury yields, driven by a resilient economy and concerns over inflation stemming from various economic policies. The Federal Reserve has recently revised its projected interest rate cuts down to two for the year, compared to previously estimated four.
Despite these looming high mortgage rates, the median existing home price increased by 6.0% from last year, reaching $404,400 in December and hitting a record high of $407,500 in 2024. Higher prices are now making it even tougher for first-time buyers to enter the market, which accounted for 31% of sales in December. This is a slight increase from 29% last year, but still significantly below the 40% share generally seen as a sign of a healthy market.
Inventory Insights
Amidst rising home prices, the real estate landscape is characterized by a significant decrease in housing inventory, which fell 13.5% to 1.15 million units last month. This is compounded by an annual increase of 16.2% in overall supply, reflecting the complexities of current market dynamics. At the December sales rate, it would take 3.3 months to deplete the existing home inventory, which is up from 3.1 months a year ago.
Interestingly, homes are now lingering longer on the market, averaging 35 days in December compared to just 29 days last year. It’s worth noting that cash sales accounted for 28% of transactions, slightly down from 29% in the previous year. Distressed sales, including foreclosures, made up only 2% of total sales, remaining constant compared to last year.
Conclusion: Is a Housing Market Recovery in Sight?
The mixed signals from the housing market necessitate a closer watch. While December showed promising gains, underlying pressures, such as elevated mortgage rates and a challenging affordability landscape, pose ongoing threats to sustained growth. Investors and potential homebuyers should remain vigilant, analyzing market indicators closely before making financial decisions.
Stay tuned for more updates as we continue to monitor the ever-evolving U.S. housing market landscape. At Extreme Investor Network, we are dedicated to providing you with the insights and analyses needed to navigate these challenging economic circumstances and make informed investment choices.