Home Sales Reach New Disappointing Milestone as Prices Increase

The used homes market fell in December, while prices shot up, the National Association of Realtors (NAR) said on Friday. However, experts suggested that a decline in mortgage rates from their two-decade highs last year may encourage more buyers into the market in 2024 even as prices stay elevated.

Sales of used homesdeclined by 1 percent for the month compared to November, falling to a little more than 4 million homes sold. On an annual basis, the sales drop was "the lowest level in nearly 30 years," NAR said, adding that median prices rose by 4.4 percent for December, hitting a record high of nearly $390,000. This was the sixth-straight jump in prices on a year-by-year basis, they said.

"The latest month's sales look to be the bottom before inevitably turning higher in the new year," Lawrence Yun, NAR's chief economist, said in a statement. "Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months."

Mortgage rates have fallen substantially over the last few months from their peak of about 8 percent in October of 2023. As of January 18, the 30-year fixed rate had dropped to 6.6 percent, which is its lowest level since May of 2023, according to Freddie Mac.

"This is an encouraging development for the housing market and in particular first-time homebuyers who are sensitive to changes in housing affordability," Sam Khater, Freddie Mac's chief economist, said in a statement on Thursday.

The outlook for 2024 could turn positive amid falling rates, some economists said on Friday. The drop of more than 1 percent in the cost of home loans could spark more sales in the used homes market, according to analysts from Oxford Economics.

"We expect the cumulative decline in mortgage rates since October of more than 100bps to support existing home sales in 2024, but rising prices and a limited supply of homes for sale will limit the upside for sales," Nancy Vanden Houten, lead U.S. Economist, said in a note shared with Newsweek.

On Friday, NAR pointed out that the number of homes available for sale continues to be a challenge. Total inventory stood at a million units, down by 11.5 percent from November, even though this was more than 4 percent above the December 2022 figure. The number of unsold units were at a 3.2-month supply, also down from November, NAR data showed.

Analysts suggested that the drop in inventory may be seasonal.

"A fall in inventory is typical in winter months," Vanden Houten said. "Inventory increased [year-over-year], but at 3.2 months of supply, is still quite tight. Inventory is expected to remain scarce, as homeowners with low mortgage rates sit on the sidelines."

Used homes sellers have stayed out of the market amid record-high mortgage rates. Nearly 90 percent of American homeowners have mortgages with interest rates under 6 percent, according to real-estate platform Redfin, making them unlikely to want to sell and enter a market where they may have to pay more for home loans. This phenomenon has limited supply of homes and in the process helped to push up prices, analysts say.

"We expect a scarce supply of existing homes for sale to keep home price growth positive this year," Vanden Houten said.

The rise in prices means some Americans have received a financial boost, according to NAR.

"Despite sluggish home sales, 85 million homeowning households enjoyed further gains in housing wealth," NAR's Yun said. "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."

Update: 1/19/24, 12:06 a.m. ET: This article has been updated with comment, fresh context and further information.