With average home prices hitting $342,000 in 2020 — 10% above 2019 — and transactions surging by 5.6% over 2019, sales are at their highest levels since 2006.
By Manuel Gutierrez, Consulting Economist to NKBA
Existing home sales data for December capped off a record-setting year as the market turned red-hot around May. Sales topped 5.64 million units, up 5.6% from 2019. This is the highest level of home sales since 2006, just before the 2007-2009 economic recession.
Mortgage rates hovering near record lows for months (and remaining at just 2.77% for the week of Jan.21), combined with a substantial increase in the percentage of individuals working from home, incentivized many consumers to purchase a home. For some, it was their first home, as they transitioned from renter to homeowner. The national homeownership rate rose by nearly 3 percentage points in the third quarter of last year, the latest data available, and now stands at 67.4%.
Last year’s surge in home sales following the initial pandemic plunge is clearly apparent in Figure 1. Sales for each month beginning in July exceeded the same period a year earlier.
December’s pace, at 6.8 million units (the red line in the chart), is just 0.7% above the previous month. However, it is 22% higher than the 5.5 million rate of December 2019.
The rising demand for housing, coupled with low inventory, has led to a substantial jump in the price of existing homes. The average (mean) price of a home sold in December was virtually unchanged from the previous month, but full-year home prices were 10.1% higher than in 2019, reaching $342,000 in December (Figure 2).
The right panel of Figure 2 plots the annual average of house price changes, going back to 2000.
On an average basis, last year’s 10.1% spike matches a similar increase in 2012, when the housing recovery began in earnest.
The low inventory of homes cited above, which contributed to higher home prices, fell further in December, to just 1.07 million units. This is the lowest number of homes available for sale since the National Association of Realtors began gathering such data.
Inventory in December was 16.4% lower than November, and an even greater 23% below the prior year.
Figure 3 shows the decline in inventory of homes that began in May 2020. This reduction coincided with the jump in home sales in the second half of last year.
The lower inventory of homes for sale, combined with current brisk sales, brought the supply of homes down to the current 1.9 months. This is also the lowest inventory-to-sales ratio in the existing homes market.
Given the change of political leadership in Washington, it is difficult to predict the future direction of home sales — but an abrupt change in the pace of sales is unlikely any time soon.
