Existing home sales closed out 2016 as the best year in a decade, despite the decrease in December’s sales, according to the new report from the National Association of Realtors.
Existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales, the highest level since 2006.
But, there are problems still.
December struggled with affordability and low levels of supply, bringing down its existing home sales by 2.8% to a seasonally adjusted rate of 5.49 million, down from an upwardly revised 5.65 million in November. This is still an increase of 0.7% from last year.
“After beating expectations in September, October and November, reality finally caught up with existing homes sales in December,” Zillow Chief Economist Svenja Gudell said. “This monthly drop cancelled out any momentum sales had picked up – making the annual gain just shy of 1%.”
“Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” NAR Chief Economist Lawrence Yun said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.”
“While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end,” Yun said.
The median existing home price increased for all housing types in December to $232,200, up 4% from December 2015. This marks the 58th consecutive month of year-over-year gains.
“Importantly, and despite the slip in sales, the inventory of homes for sale fell to the lowest level in the 17 years for which data is available,” Nationwide Chief Economist David Berson said. “Looking at just single-family sales, the inventory of home for sale dropped to the second lowest level in the nearly 34 years for which data is available.”
In addition to working at insurance and financial services companie Nationwide, Berson previously served as Fannie Mae's chief economist, where he worked for more than 20 years.
“This low level of inventories has two significant impacts: It reduces the number of sales as there are fewer homes to be purchased and it pushes up re-sale prices, with the median sales price of existing homes sold up by 5.5% in 2016 – the fifth consecutive year in which prices rose by more than 5%,” Berson said.
Total housing inventory dropped 10.8% in December to 1.65 million existing homes available for sale, the lowest level since NAR began tracking housing supply in 1999. Inventory decreased 6.3% from last year and has fallen for 19 consecutive months to a 3.6-month supply at the current sales pace.
“Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” Yun said. “Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels.”
“More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production,” he said.
In face, one expert stressed that lack of inventory is one of the most important factors holding back home sales.
“Mortgage rates aren't holding back home sales; the drop in inventory is,” Redfin Chief Economist Nela Richardson countered. “Among homes that sold in December, just shy of one-third, 32.7%, went under contract within two weeks—the largest reduction in inventory in any single month on record.”
First time buyers held steady, making up 32% of the market, the same as November of 2016 and December 2015.
“Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it’s not getting any easier to be a first-time buyer,” Yun said. “It’ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”