By Naveen Athrappully
Sales of existing homes dropped last year to the lowest in 28 years even as property prices jumped to record highs, according to the National Association of Realtors (NAR)
Existing home sales declined to 4.09 million units in 2023, which is the lowest level since 1995, according to a Jan. 19 NAR press release. At the same time, the median price of homes hit a “record high” of $389,800. “Despite sluggish home sales, 85 million homeowning households enjoyed further gains in housing wealth,” said NAR Chief Economist Lawrence Yun. “Obviously, the recent, rapid three-year rise in home prices is unsustainable.”
“If price increases continue at the current pace, the country could accelerate into haves and have-nots. Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”
In December, existing home sales declined from the previous month as well as from a year back. Meanwhile, the total housing inventory at the end of the month was 1 million units, down by 11.5 percent from November but up by over 4 percent in 2022.
Unsold inventory is now only enough to meet 3.2 months of supply at the current pace of sales, down from 3.5 months in November.
“The latest month’s sales look to be the bottom before inevitably turning higher in the New Year,” Mr. Yun said. “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”
Since the pandemic, home sales have seen ups and downs in accordance with changing mortgage interest rates. By the end of the first pandemic year in 2020, around 5.5 million homes were sold. This increased to six million in 2021 as mortgage rates declined.
However, beginning in early 2022, the U.S. Federal Reserve began raising its benchmark interest rate, which also triggered a jump in mortgage rates, thereby making mortgages more expensive for prospective homeowners.
Between January 2022 and December 2023, the Fed raised its effective rate from 0.08 percent to 5.33 percent. During this time, the average weekly rate for a 30-year fixed-rate mortgage increased from 3.22 to 6.61 percent. Home sales dropped to five million in 2022 and then to roughly four million last year.
Lisa Sturtevant, chief economist at Bright Multiple Listing Service, doesn’t think that mortgage rates alone are responsible for the low home sales.
“The demand for housing—and homeownership, in particular—has remained high, despite higher rates,” she said in a statement, according to CNN. “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.”
While mortgage rates have remained elevated over the past year, it has been declining in recent weeks. For the week ending Jan. 17, the average 30-year fixed-rate mortgage was 6.60 percent, down from 7.79 percent in late October, according to Freddie Mac.
Mortgage rates decreased in the week to hit their lowest level since May 2023. “This is an encouraging development for the housing market and, in particular, first-time homebuyers who are sensitive to changes in housing affordability.”
“However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale.”
Real estate brokerage Redfin is reporting higher interest from homebuyers due to lower rates. Both homebuyers and homesellers are now making a move “largely because mortgage rates are holding steady in the mid-6 percent range,” the company said in a Jan. 18 press release.
Agents from the company claim that demand and listings would be increasing even more now if the United States was not experiencing severe winter.
“We expected both buyers and sellers to react more strongly to last month’s drop in mortgage rates once the holidays passed, but frigid weather and snowstorms have halted a lot of buying and selling plans,” said Redfin Economic Research Lead Chen Zhao. “As long as rates don’t shoot up, we expect the market to pick up as the spring season approaches.”
Chicago Redfin Premier agent Dan Close pointed out that homebuyers are feeling “more confident” that they will be able to secure good value for their money.
“Many first-timers are jumping in because Chicago rents are still rising. Homeowners who were waiting for the holidays to be over and rates to come down before selling are getting ready to list. I have several listings prepped to hit the market, some as early as this week and some throughout the rest of the first quarter.”
High mortgage rates are a key factor keeping many sellers from entering the market. Redfin reports that 89 percent of Americans with mortgages have an interest rate below six percent, which is less than the current 6.6 percent rate.
Hence, such individuals have a lower incentive to sell their homes since they may then have to buy a home at a higher rate. However, some homeowners are still selling, enticed by the higher home prices.