NAR: Home Sales Retreat, But Better Days Likely Are Coming
December was another difficult month for home buyers, but expect sales to pick up soon, says NAR’s chief economist.
December 2022 marked another month of sluggish home sales as buyers continued to back away from the market, spooked by higher mortgage rates and few choices of homes for sale. But home prices remained strong.
Total existing-home sales—completed transactions that include single-family homes, townhomes, condos and co-ops—fell 1.5% in December compared to November. Existing-home sales plunged 34% since a year ago, according to the latest report from the National Association of REALTORS®.
“December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” says Lawrence Yun, NAR’s chief economist. “However, expect sales to pick up again soon, since mortgage rates have markedly declined after peaking late last year.”
The 30-year fixed-rate mortgage averaged 6.15% this week, continuing to fall from its peak of 7.08% in mid-November 2022, according to Freddie Mac data. Monthly mortgage payments have eased by about $300 per month in that time, says Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®.
The lower mortgage rates may offer some relief from still-high home prices. The median existing-home price in December 2022 was $366,900, up 2.3% from a year before at $358,800.
“Home prices nationwide are still positive, though mildly,” Yun says. “Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”
Snapshot of Key Indicators
Here’s a closer look at the latest housing indicators from NAR’s report:
- Housing inventory: Total housing inventory fell 13.4% in December compared to November. However, inventory is up 10.2% compared to a year earlier. Still, housing inventories remain tight, offering a 2.9-month supply at the current sales pace.
- Days on the market: Fifty-seven percent of homes sold in December 2022 were on the market for less than a month. That is lower than the 61% of homes that sold in November. Properties are starting to stay on the market longer. In December, properties typically stayed on the market for 26 days, up from 24 days in November and the 19-day average from a year earlier.
- First-time buyers: First-time buyers are coming back to the housing market. They comprised 31% of sales last month, up from 28% in November and 30% in December 2021.
- All-cash sales: All-cash transactions comprised 28% of sales in December, a growing percentage (26% in November 2022 and 23% in December 2021). “Cash buyers are unaffected by fluctuations in mortgage rates and were able to take advantage of lower prices in some areas,” Yun says. Individual investors and second-home buyers tend to make up most cash sales. They purchased 16% of homes in December, up from 14% in November but down slightly from 17% in December 2021.
- Distressed sales: Foreclosures and short sales continue to make up a historically low percentage of sales, only 1% in December, essentially unchanged from a year ago.
Home Builders Report Progress, But Still a Ways to Go
Meanwhile, despite sluggish sales recently, home builders are feeling a little more upbeat. Builder confidence increased in January, as a “low point for builder sentiment” in December 2022 seems to be drifting into the rear-view mirror with January seeing some progress, Jerry Konter, chairman of the National Association of Home Builders, says about the latest builder confidence index reading. Still, more builders are reportedly using price reductions to boost sales, but Konter predicts a rebound for home building could be underway later this year.
Builders are starting to build more. Single-family housing starts posted a double-digit percentage gain in December—up 11.3% compared to November 2022, the Commerce Department reported this week. Production, however, is still running well below a rate of 1 million units annually.
“While NAHB is forecasting a decline for single-family starts this year compared to 2022, it appears a turning point for housing lies ahead,” says NAHB Chief Economist Robert Dietz. “In the coming quarters, single-family home building will rise off of cycle lows as mortgage rates are expected to trend lower and boost housing affordability. Improved housing affordability will increase housing demand, as the nation grapples with a structural housing deficit of 1.5 million units.”
Regional Breakdown on Home Sales
Here’s a closer look at how existing-home sales fared across the country in December:
Northeast: Sales decreased 1.9% compared to November, reaching an annual rate of 520,000. That is a nearly 29% decrease compared to December 2021. Median price: $391,400, up 1.6% compared to a year earlier.
Midwest: Existing-home sales dropped 1% month over month, reaching an annual rate of 1.01 million in December. Sales are down 30.3% from a year ago. Median price: $262,000, up 2.9% from December 2021.
South: Sales fell 2.2% in December compared to November, reaching an annual rate of 1.80 million. That is down 33.1% from the previous year. Median price: $337,900, up 3.5% from a year earlier.
West: Existing-home sales were essentially flat in December compared to November, continuing to hold at an annual rate of 690,000. Sales, however, are down 43.4% compared to one year ago. Median price: $557,900, up less than a tenth of a percent compared to December 2021 ($200).