February 6, 2023

Existing home sales fell in December to the slowest pace since 2010

Homes in Rocklin, California, United States, on Tuesday, December 6, 2022. A record number of homes have been written off as sellers face a sharp drop in demand, according to real estate brokerage Redfin.

David Paul Morris | bloomberg | Getty Images

Previously owned home sales fell 1.5% in December compared to the previous month, according to the National Association of Realtors.

Sales finished the year at a seasonally adjusted annual rate of 4.02 million units, which was 34% lower than December 2021. It was the slowest pace since November 2010, when the nation was grappling through a housing crisis caused by subprime mortgages.

Total sales for the year are down 17.8% from 2021.

Home sales have now fallen for 11 months in a row, owing to rising mortgage rates, which began rising last spring and more than doubled by fall. Extremely high prices, driven by soaring demand during the early years of the pandemic, further eroded affordability and caused supply to drop sharply.

“December was another tough month for buyers, who are still facing limited inventory and high mortgage rates,” said Lawrence Yoon, chief economist at Realtors. “However, we expect sales to pick up again soon as mortgage rates have fallen significantly after peaking late last year.”

Mortgage rates are down a full percentage point since their highs last October, but they’re still almost twice as high as they were a year ago.

At the end of December, the total housing stock was down 13.4% from November to 970,000 units. However, it increased by 10.2% from the previous December. Unsold inventory supply is 2.9 months at the current pace of sales, down from 3.3 months in November but up from 1.7 months in December 2021.

Lower supply continues to support prices somewhat, but the gains are narrowing compared to last year. The median price of an existing home sold in December was $366,900, up 2.3% from the prior year. It’s still the highest recorded for the month of December, but the year-over-year price gains were in the double digits last summer.

“Markets in about half of the country are likely to offer discounted prices to potential buyers compared to last year,” Yoon added.

But the problem is that sellers do not enter the market, due to low prices and weak demand. Total inventory is higher than last year because homes stay on the market longer. New listings in January are down year-on-year.

“Demand evaporation has ended the strong seller market of the past several years, and declining home sales tell us that many buyers still cannot afford to buy or are not yet convinced that the market is sufficiently tilted in their favor going forward,” said Danielle Hill, chief economist at Realtor.com, the housing market is entering “empty market” territory where buyers and sellers remain largely at a standstill.

First-time buyers continue to struggle in today’s market, making up just 31% of December sales. While this percentage is higher than the 30% in December of last year, it is far from the historical norm of 40%.

The market continues to slow, with homes staying on the market for an average of 26 days, up from 24 days in November and 19 days in December 2021.

All cash sales rose to 28% of transactions from 23% a year earlier and investors accounted for 16% of sales, down slightly from 17% a year earlier.

While sales are dropping across all price categories, they’re falling sharply on the higher end. Sales of homes over $1 million are down 45% year over year, compared to sales of homes between $250,000 and $500,000, which are down 34%. Yoon suggested that weakness at the higher end may be due to volatility in the stock market.