Sales of existing homes in the United States took a nosedive to their lowest recorded in 28 years as property prices hit record highs, becoming unaffordable to first-time buyers.
According to the National Association of Realtors (NAR), existing home sales dropped to 4.09 million units in 2023.
Meanwhile, median home prices jumped to a “record high” of $389,800.
This came amid higher mortgage rates, a lack of available homes, and rising prices, thus creating a perfect storm to make homeownership out of reach for many Americans.
For instance, home sales fell 24.8% in California in 2023, making the biggest slump since 2007, according to the California Assn. of Realtors.
However, NAR Chief Economist Lawrence Yun said that despite sluggish home sales, homeowning Americans enjoyed “housing wealth” gains.
“Obviously, the recent, rapid three-year rise in home prices is unsustainable,” Yun noted.
“If price increases continue at the current pace, the country could accelerate into haves and have-nots. Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction,” Yun added.
Existing home sales declined in December from the previous month and the prior year, with 1 million units of housing inventory left.
“The latest month’s sales look to be the bottom before inevitably turning higher in the New Year,” Mr. Yun said. “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”
Changing mortgage interest rates have been affecting sales since the pandemic. By the end of 2020, only 5.5 million homes were sold, increasing to six million in 2021 amid declining mortgage rates.
However, the Federal Reserve began raising interest rates from 0.08 percent to 5.33 percent between January 2022 and December 2023, triggering a sharp jump in mortgage rates. During this time, the average weekly rate for a 30-year fixed-rate mortgage jumped from 3.22 to 6.61 percent.
Average 30-Year Mortgage Rate in the US…
— Charlie Bilello (@charliebilello) January 19, 2024
1970s: 8.9%
1980s: 12.7%
1990s: 8.1%
2000s: 6.3%
2010s: 4.1%
2020s: 4.6%
—
All-Time Low (Jan 2021): 2.65%
2023 Peak (Oct 2023): 7.79%
Today's Rate: 6.60% pic.twitter.com/ahZ3Z2Nnvh
Since then, the decline in home sales became obvious, dropping to five million in 2022 and four million in 2023.
Despite the soaring mortgage rates, Lisa Sturtevant, chief economist at Bright Multiple Listing Service, believes other factors are at play.
“The demand for housing—and homeownership, in particular—has remained high, despite higher rates,” she said in a statement, according to CNN. “Prospective homebuyers have been shut out of the market by a lack of inventory. If there had been more listings on the market in 2023, we would have had more home sales.”
According to Axios, America is short around 3.2 million homes.
The outlet reported:
That’s 2.5% of existing U.S. inventory as of 2022, according to figures that Hines, a global real estate developer and investment company, shared with Axios.
“We’re not going to overcome this deficit anytime soon just building single-family housing,” Hines managing director Ryan McCullough said.
However, mortgage rates have been decling in 2024. For instance, in the week ending Jan. 17, the average 30-year fixed-rate mortgage decreased from 7.79 in October to 6.60 percent, Freddie Mac reported.
According to real estate brokerage Redfin, the decrease in lower rates is now triggering interest from homebuyers.
“We expected both buyers and sellers to react more strongly to last month’s drop in mortgage rates once the holidays passed, but frigid weather and snowstorms have halted a lot of buying and selling plans,” said Redfin Economic Research Lead Chen Zhao. “As long as rates don’t shoot up, we expect the market to pick up as the spring season approaches.”
“Many first-timers are jumping in because Chicago rents are still rising. Homeowners who were waiting for the holidays to be over and rates to come down before selling are getting ready to list. I have several listings prepped to hit the market, some as early as this week and some throughout the rest of the first quarter,” Zhao added.
