Home Sales Slow as Mortgage Rates and Home Prices Rise

Home Sales Slow as Mortgage Rates and Home Prices Rise

Home Prices

For the first time in two months, home sales declined in December. According to the National Association of Realtors (NAR), all four sales regions in the country recorded a drop. Rising interest rates were partly to blame. According to Lawrence Yun, chief economist for the NAR, “Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today.” Mortgage rates have recently decreased, leading NAR to forecast an increase in home sales in the coming spring.

Climbing Prices
For the 82nd month in a row, housing prices climbed year over year. In December, the median existing-home sales price reached $253,600, a 2.9 percent increase from the median price in December 2017, $246,500. On average, a property remained available for sale for 46 days in December, four days longer than a month ago and six days longer than a year ago. Of all the homes sold in December, 39 percent stayed on the market for less than a month.

Improving Stock
At the end of December, there were 1.55 million properties available for sale, down from 1.74 million homes on the market in November. However, there was improvement in year-over-year figures; at the same time last year, there were only 1.46 million homes available for sale. At the current sales pace, it would take 3.7 months for this level of inventory to sell. A month ago, there was a 3.9-month supply, while a year ago inventory levels would last only 3.2 months. The increase in housing supply is welcome news for buyers, as it could slow down home-price appreciation. However, Yun notes, “There is still a lack of adequate inventory on the lower-priced points and too many upper-priced points.”

Who’s Buying?
Since first-time buyers typically purchase homes on the lower end of the market, they are feeling the impacts of the lack of inventory. This group accounted for 32 percent of all home purchases in December, down 1 percent from a month ago but unchanged from a year ago. In 2018, first-time buyers made up 33 percent of the market, according to NAR’s 2018 Profile of Home Buyers and Sellers. Investors are also dealing with a lack of inventory, as distressed sales—which include short sales and foreclosures—only accounted for 2 percent of all sales in December, unchanged from a month ago but down from 5 percent a year ago. Individual investors accounted for 13 percent of the market in December, unchanged from November but down 3 percent from a year ago. Of all the transactions recorded in December, 22 percent were all-cash sales, up from 21 percent a month ago and 20 percent a year ago.

Regional Breakdown

Northeast – Existing-home sales annual rate of 690,000; a decrease of 6.8 percent from November and 6.8 percent from December 2017.

Midwest – Existing-home sales annual rate of 1.19 million; a decrease of 11.2 percent from November and 10.5 percent from December 2017.

South – Existing-home sales annual rate of 2.09 million; a decrease of 5.4 percent from November and 8.7 percent from December 2017.

West – Existing-home sales annual rate of 1.02 million; a decrease of 1.9 percent from November and 15 percent from December 2017.