Declining Demand and Limited Supply Drive Prices Up
In December, home sales reached their lowest level in over a decade due to the ongoing imbalance between demand and supply. This resulted in a surge in prices, bringing the year to a close on a high note.
Sales Activity Hits Rock Bottom
Sales activity in December hit its lowest point since August 2010. The National Association of Realtors reported a 1% decrease in sales of previously owned homes, with an annual rate of 3.78 million units for the month. These figures represent the number of homes that would be sold over a year if sales continued at the same pace as in December, and have been seasonally adjusted.
Unfortunately, these numbers fell short of Wall Street’s expectations, which had anticipated a sales pace of 3.83 million units for December. This decline in sales also shows a 6.2% decrease compared to December 2022.
2023: A Challenging Year for Home Sales
The overall picture for 2023 looks even bleaker, with sales dropping almost 19% compared to the previous year. This brings us to the lowest level of home sales since 1995, as reported by the NAR. Additionally, the median home price reached a record high during this period.
Median Home Price on the Rise
The median price for an existing home in December increased by 4.4% to reach $382,600, compared to the previous year. It should be noted that prices are still lower than their peak in June 2022, when the median price reached $413,800.
Taking into account the entire year of 2023, the median home price hit a new record high at $389,800, according to the NAR. This significant increase is noteworthy when compared to the median price of $114,600 during the last period of historically low sales in 1995.
Limited Supply Persists
Despite the challenging sales numbers, there was a 4.2% increase in the total number of homes available for sale in December compared to the previous year. This brings the total number of units on the market to 1 million.
In conclusion, the downward trend in home sales, along with limited supply, has significantly impacted prices. With 2023 being a tumultuous year for the housing market, it remains to be seen how these conditions will evolve in the coming months.
U.S. Housing Market Trends
Homes listed for sale remained on the market for an average of 29 days, a slight increase from the previous month.
Regional Sales Analysis
Sales of existing homes varied across the nation, with the highest increase observed in the West, where sales rose by 7.8%. The median price of a home in this region stood at $582,000.
All-cash buyers accounted for 29% of total sales, while individual investors or second-home buyers made up 16% of the market. First-time home buyers represented 29% of all home purchases.
The State of the Housing Market
The U.S. housing market finds itself in a period of uncertainty.
Falling mortgage rates are enticing buyers to re-enter the market. However, the shortage of available homes for sale is dampening overall home sales. This supply-and-demand imbalance may result in further increases in home prices, as more buyers compete for limited properties.
Chief economist Lawrence Yun from the National Association of Realtors (NAR) expressed his perspective: “The latest month’s sales appear to be the lowest point before an inevitable rebound in the new year. Mortgage rates have significantly dropped over the past two months, and we expect more homes to enter the market in the coming months.”
In response to these market developments, stock prices, including DJIA and SPX, showed an upward trend in early trading on Friday. Additionally, the yield on the 10-year note (BX:TMUBMUSD10Y) exceeded 4.15%.