Existing home sales fell 4.6% in December to a seasonally adjusted annual rate of 6.18 million, ending a three-month streak of gains and dropping 7.1% year over year, according to a report from the National Association of Realtors released Thursday.
All four major U.S. regions saw sales decline in December both month-over-month and year-over-year.
Despite these declines, the annual existing-home sales rate hit its highest mark since 2006, with an overall sales increase of 8.5% for 2021.
Housing experts attributed the drop in December in part to rising mortgage rates – which have also risen since December – as well as record-low housing inventory. In December, the total housing inventory amounted to 910,000 units, down 18% from November and down 14.2% from a year ago. At the current sales pace, unsold inventory sits at a 1.8 month supply, down from 2.1 months in November.
“Sales volumes in December fell prey to a simple truism: It’s very hard for sales to meaningfully grow when there’s just not that much available to buy,” Zillow senior economist Kwame Donaldson said in a statement. “Existing home sales fell back to earth in December after an unexpectedly strong autumn, and the seasonally adjusted annual rate of sales ended 2021 below the level reported at the end of 2020 — the first time since 2018 that the rate of existing home sales closed out the year below its starting point.”
However, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau’s housing starts report, the number of homes under construction increased in December, reaching their highest level in the past nine-months, offering a sign of hope that more inventory may soon hit the market.
“This new supply is clearly needed, as move-up buyers purchasing new homes will free up existing inventory for the wave of first-time buyers,” Mortgage Banker Association SVP and chief economist Mike Fratantoni said in a statement.
The median existing-home price for all housing types in December was $385,000, a 15.8% year-over-year increase, marking 118 straight months of year-over-year price increases. Prices rose in all four major U.S. regions with the South seeing the highest pace of appreciation.
Lawrence Yun, NAR’s chief economist, said that while he expects home prices to continue to rise in 2022, rising mortgage rates should keep these increases more moderate.
The report also found that, in December, properties typically remained on the market for 19 days, an increase of one day from November, but down from 21 days in December 2020. Nearly 80% of homes sold in December were on the market for less than a month.
During December, first-time buyers were responsible for 30% of sales, up from 26% in November, but down from 31% a year ago. The annual share of first-time buyers was 34%, according to NAR’s 2021 Profile of Home Buyers and Sellers.
“The good news in the report was the rising share of first-time buyers,” Fratantoni said in a statement. “We fully expect that this share will remain high as the largest cohort of millennials approach the peak ages of buying their first home. This will support housing demand for the next several years.”