After seeing gains in previous months, existing home sales dropped suddenly in December, seeing double-digit losses from the year before.
Total existing home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 6.4% from November to a seasonally adjusted rate of 4.99 million sales in December. This is down a full 10.3% from December 2017’s 5.56 million sales.
Realtor.com Chief Economist Danielle Hale explained this is the first time in three years that existing homes sales slipped below the 5 million mark.
Due to the ongoing government shutdown, some might wonder what the effect has been on real estate, and if it is to blame for the decrease in home sales. NAR explained that it did not, saying, “The partial shutdown of the federal government has not had a significant effect on December closings,” said NAR President John Smaby.
However, Smaby added that “the uncertainty of a shutdown has the potential to harm the market. Once the government is fully reopened, I am hopeful that housing transactions will increase.”
But not everyone is quite so optimistic.
“Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty,” Trulia Senior Economist Cheryl Young said.
This drop is a result of interest rates which increased throughout 2018, according to NAR Chief Economist Lawrence Yun.
“The housing market is obviously very sensitive to mortgage rates,” Yun said. “Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring.”
The median existing home price for all housing types increased in December by 2.9% to $253,600, up from $246,500 in December 2017. This marks the 82nd straight month of year-over-year gains.
Housing inventory shrank in December, falling to 1.55 million existing homes for sale, down from 1.74 million in November. However, this is an increase from 1.46 million in December 2017. Unsold inventory stood at a 3.7 month supply at the current sales pace, down from 3.9 months in November but up from 3.2 months in December the year before.
“Several consecutive months of rising inventory is a positive development for consumers and could lead to slower home price appreciation,” Yun said. “But there is still a lack of adequate inventory on the lower-priced points and too many in upper-priced points.”
Properties stayed on the market an average of 46 days in December, up from 42 days in November and 40 days the year before. NAR reported that 39% of all homes sold in December were on the market for less than a month.
“Looking ahead, many potential homebuyers still face affordability challenges, but we do expect this to dissipate slowly, as there have been more signs of moderating home-price growth and accelerating wage growth, which should help bridge the affordability gap,” said Joel Kan, Mortgage Bankers Association vice president of economic and industry forecasting.
“With lower mortgage rates to start 2019, and a pickup in purchase applications in recent weeks, we are cautiously optimistic that the spring home buying season will bring better news,” Kan said.