The numbers: Existing-home sales beat analyst estimates and rose in December, even as inventory dropped once again to a record low.
Total existing-home sales increased 0.7% from November to a seasonally-adjusted annual rate of 6.76 million, the National Association of Realtors reported Friday. Compared with a year ago, home sales were up roughly 22%.
“Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic,” Lawrence Yun, the trade group’s chief economist, said in the report.
Economists polled by MarketWatch had projected that existing-home sales would fall to a median rate of 6.55 million.
What happened: The median existing-home price in December came in at $309,800, which is nearly 13% higher than a year ago. Prices increased across every region of the country.
The inventory of homes for sale fell 16% between November and December. As of December, the market had a 1.9-month supply of homes for sale based on the current sales pace, an all-time low. A 6-month supply is considered to be a sign of a balanced market.
Regionally, home sales rose the most in the Northeast (up 4.5% from November), followed by the South (up 1.1%). Sales remained unchanged in the Midwest and fell 1.4% in the West.
The big picture: While sales didn’t continue the downward streak from November, the increase is likely to be short-lived this winter. Mortgage application data has trended downward — most likely a reflection of tighter lending standards and buyer fears of the current wave of COVID-19 infections, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“The bottom line here is that the surge in mortgage demand and home sales is over, for now, and construction will follow suit,” Shepherdson wrote in a research report. “Home prices, however, will continue to rise rapidly, given the imbalance between supply and demand, but we don’t expect to see any further sustained acceleration until the summer.”
That said, economists expect mortgage rates to remain historically low for the foreseeable future, and the economy is likely to show signs of improvement as more people are vaccinated. That should give a boost to the housing market in the spring.
The trouble for buyers is that it’s not yet clear whether more people will choose to list their homes for sale in the coming months. With the inventory of homes for sale at record lows, buyers will be forced to compete more to purchase a home, paying higher and higher prices. Ultimately, the supply of homes could constrain how much room home sales have to grow.
What they’re saying: “While new mortgage applications ramped higher at year-end, housing demand looks to have cooled a few degrees due to rising COVID-related anxiety, a record-low supply of available homes, and escalating prices,” Robert Kavcic, senior economist at BMO Capital Markets, wrote in a research note.