Home sales in the U.S. ended 2021 on a low note in December, but annual sales activity for the entire year reached its highest level since 2006.
Existing home sales fell 4.6% to a seasonally adjusted 6.18 million million units in December from a month earlier, according to the National Association of Realtors (NAR). November existing home sales were revised slightly down to 6.46 million from 6.48 million. The number of sales was down 7.1% from the same month a year ago. The results were far more disappointing than analysts’ expectations of a 0.5% month-over-month decrease to 6.43 million units, according to Bloomberg consensus estimates.
For the entire year, there were 6.12 million units sold in 2021, the most since 2006 and up 8.5% from the prior year when activity was fueled by pent up demand from COVID-19 lockdowns, according to the NAR. Prior to COVID, there were 5 million to 5.5 million unit sales per year. The December results could have been anticipated since pending home sales slipped in November, which is an indicator of future sales activity.
“December saw sales retreat, but the pullback was more a sign of supply constraints than an indication of a weakened demand for housing,” said Lawrence Yun, NAR’s chief economist, also attributing the slowdown in the final month of 2021 to rising mortgage interest rates, “which can produce mixed results. Some people want to hurry and buy, others want to wait to buy. Rising rates will cut into home sales.”
“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” said Sam Khater, Freddie Mac’s chief economist, in a press statement. “As a result of higher mortgage rates, purchase demand has modestly waned in advance of the spring homebuying season. However, supply remains near historically tight levels and home prices remain high, keeping the market competitive.
Total housing inventory at the end of December was 910,000 units, down 18.0% from November and down 14.2% from one year ago — the lowest level since 1999, when NAR started tracking inventory for all housing types (NAR started tracking single family home inventory in 1982). Unsold inventory sits at a 1.8-month supply at the present sales pace, down from 2.1 months in November and from 1.9 months in December 2020.
“The fall in existing home sales has nothing to do with demand or interest rates, and everything to do with supply. The previous two months had seen a strong surge in sales, helping to drain inventories and make an already tight market tighter,” said Robert Frick, corporate economist at Navy Federal Credit Union, in a statement. “While mortgage rates are rising, they wouldn’t have affected the December data, and may not have much of an effect on sales as long as they stay well below the historical average. Unfortunately, the tight market continues to push up home prices, with the median price up 15.8% from a year earlier. With every month, fewer first-time homebuyers, especially, can afford a home.”https://flo.uri.sh/visualisation/5640681/embed?auto=1
The median existing-home price for all housing types in December was $358,000, up 15.8% from December 2020 ($309,200), as prices rose in each region. The South witnessed the highest pace of appreciation. The re-acceleration of price increases, from the low teens, in December implies that demand is still strong as supply continues to wane, Yun said.
Prices were pushed up by the sale of homes in the higher price range. The number of homes sold above $1 million was up 38% from a month ago, while sales of homes from $750,000 to $1 million was up 32%, according to NAR.
“Although they lagged behind year ago levels, existing home sales hit its 4th straight month at above 6 million in December, closing out 2021 on a relatively high note. Rising concerns about inflation gave home shoppers a big reason to stay in the market in December: The potential opportunity to close on a home before prices and mortgage rates tick up further,” said Realtor.com Chief Economist Danielle Hale in a statement prior to the results.
Hale added: “With housing inventory dwindling and prices rising, finding the right home that’s still in the budget continues to be the hardest part of the real estate journey — and means the supply of for-sale homes remains a key driver of sales activity. This is illustrated by existing home sales trends over the course of 2021, which started strong before dipping in the traditionally busy spring and summer months, when there were few homes available for sale, and then rebounded into the fall as more new sellers meant more options for eager buyers to jump on.”