U.S. existing home sales dropped for the 12th straight month in December, capping off the slowest year for home sales since 1995. Surging mortgage rates have pushed home affordability out of reach for many buyers, leading to a sharp decline in housing demand.
Key Data Highlights Depth of Housing Slump
According to data released by the National Association of Realtors on Thursday, existing home sales fell 1.5% in December to a seasonally adjusted annual rate of 3.78 million units. For the full year, home resales tumbled 17.8% from 2021 to 5.03 million homes sold. This yearly total represents the lowest home sales figure since 2014 and is over 30% below the recent high of 7.08 million homes sold in 2020.
Other key data highlights revealing the depth of the housing downturn:
- The median existing home price jumped 9.3% from last year to $366,900, a new record high. However, on a monthly basis prices showed signs of cooling, falling 1.5% from November 2022.
- Total housing inventory rose to 970,000 units, up 10.2% over November and 2.1% higher than a year ago. This represents a 4-month supply at the current sales pace.
- Properties stayed on the market for an average of 44 days in December, up from 26 days a year ago.
| Year | Total Home Sales | Change from Prior Year |
|---|---|---|
| 2022 | 5.03 million | -17.8% |
| 2021 | 6.12 million | +8.5% |
| 2020 | 7.08 million | +22.2% |
Soaring Mortgage Rates Slam Brakes on Housing
The housing sector has borne the brunt of the Federal Reserve’s aggressive policy tightening campaign in 2022. As the central bank hiked interest rates seven times last year to tame rampant inflation, mortgage rates exploded higher in response.
The average 30-year fixed mortgage rate peaked at 7.08% in late October – more than double the 2.65% average seen in the first week of January 2022. This spike in financing costs has dramatically eroded homebuyer purchasing power and affordability.
Many potential home shoppers have been priced out or are sitting on the sidelines waiting for rates to moderate. First-time buyers have been especially hard hit, given their reliance on financing. With mortgage applications falling over 40% from last year, demand has cratered.
Inventory Rise Provides ray of Hope
While still low by historical standards, total housing inventory has risen slightly over the past few months. If this nascent uptrend continues as more homeowners list their properties, it could provide a glimmer of hope for an eventual housing rebound.
More supply coming onto the market would give buyers more options to choose from and take some upward pressure off home prices. This improvement in housing affordability as mortgage rates ease back could coax some prospective purchasers back into the market.
Further Key Quotes
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“Home sales have declined for 12 straight months on an annual basis, and the trend is unlikely to change soon with mortgage rates still relatively high,” said Lawrence Yun, NAR’s chief economist.
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Danielle Hale, Realtor.com’s chief economist, noted the combination of slowing price gains and rising inventory sets the stage for housing demand recovery in 2023. However, she cautioned that stubbornly high mortgage rates continue to limit buyers’ budgets.
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“The housing sector will remain a drag on the economy in the year ahead as homebuilding and sales continue adjusting to a higher interest rate environment after a period of historically low rates,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
Outlook Remains Gloomy for Housing in Near Term
Most economists expect the housing recession has further to run before reaching an eventual bottom. Ongoing economic uncertainty, high inflation, and the potential for additional Fed policy tightening pose significant headwinds for the real estate sector over the coming months.
Mortgage rates are forecast to remain above 6% through at least mid-year, which will continue to restrain demand and home buying activity into 2024. Further gradual price and sales declines are likely until rates moderate enough to improve affordability.
While another plunge in home values like that seen in the 2008 financial crisis has so far been avoided, the correction still has room to deepen. Existing home prices are expected to fall around 10% peak-to-trough, according to Goldman Sachs, Zillow, and other analysts.
Overall housing starts, purchases, and sales activity look poised to drop between 15-20% from 2022 totals before finding a floor. A true housing recovery likely won’t take hold until late 2023 or 2024 as buyers gradually return. But the light at the end of the tunnel is finally starting to emerge.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
