Existing home sales in the United States cooled off significantly in December, dropping 4.6% on the month to 6.18 million amid near-record housing prices and supply constraints, according to a report from the National Association of Realtors on Thursday.
Still, 2021 was a record year for the housing market with 6.12 million existing homes sold—the highest in 15 years—as robust demand pushed prices to new heights.
The median price for existing houses rose for the fourth month in a row to $358,000, only $1,500 lower than the all-time peak of $359,500 in last July. While demand remained strong in December, it certainly showed some decline as high prices and rising mortgage rates pushed some buyers away.
Supply became a greater challenge in December with total inventory down 18% from November; at the current sales pace, unsold inventory will last only 1.8 months, down from 2.1 months in November.
The share of first-time buyers increased to 30% in December from 26%, most likely because they did not want to miss the final chance to capitalize on low mortgage rates.
Sales of single-family homes and condominiums declined sharply in December, down 4.3% and 7%, respectively. The drop in sales was also recorded in all four regions, led by the West (down 8.3%) and the South (down 7.3%).
We expect sales to continue to cool down at a moderate pace as mortgage rates rise because of several potential rate hikes by the Federal Reserve.
At the same time, with the pandemic on pace to become an endemic, the surge in demand for housing—because of a shift to remote work in late 2020 and last year—will eventually subside, helping the market to achieve better balance between demand and supply.