Photo: JenkoAtaman / Adobestock

After three steady months of increases, existing-home sales fell 4.6% in December, according to the National Association of Realtors (NAR). The trend was nationwide, as all four major U.S. regions reported both month-over-month and year-over-year declines. Yet, despite the drop in monthly sales, overall sales increased in 2021 by 8.5% from 2020. According to NAR Chief Economist Lawrence Yun, sales for 2021 reached the highest annual level since 2006. "December saw sales retreat, but the pullback was more a sign of supply constraints than an indication of a weakened demand for housing."

Mortgage Rates Are Rising
Higher mortgage rates are expected to bring a slowdown to existing-home sales over the coming months. Yun expects mortgage rates to remain below 4% by the end of the year and wages to hold steady due to a tight labor market, which will help protect housing affordability. But Yun also cautioned homebuyers to prepare for changing mortgage rates. In addition, he stated, "I also expect home prices to grow more moderately by 3% to 5% in 2022, and then similarly in 2023 as more supply reaches the market."

Monthly Housing Inventory Falls
Inventory levels hit an all-time low in December. By the end of the month, total housing inventory was down to 910,000 units, a decrease of 18% month over month and 14.2% year over year. At the current sales pace, this level of inventory would satisfy the market for only 1.8 months—an all-time low since January 1999. In comparison, there was a 2.1-month supply in November 2021 and a 1.9-month supply in December 2020. "Home builders have already made strides in 2022 to increase supply," said Yun, "but reversing gaps like the ones we've seen recently will take years to correct."

Low Supply Drives Up Prices
With supply hitting record lows, it should come as no surprise that housing prices reacted in turn. Prices in every region of the country rose in December, with the median existing-home price climbing 15.8% year over year, setting a new record. The average property remained on the market for just 19 days in December, compared with 21 days in December 2020. Of all the homes sold in December 2021, 79% were available for less than 30 days.

First-Time Buyers Entering the Market
According to the NAR "2021 Profile of Home Buyers and Sellers," the annual share of first-time buyers was 34%. For the last month of the year, first-time buyers accounted for 30% of all transactions, up from 26% in November but down from 31% a year earlier. Yun believed the end of 2021 saw a surge of first-time buyers entering the market. "With mortgage rates expected to rise in 2022, it's likely that a portion of December buyers were intent on avoiding the inevitable rate increase," he posited. Individual investors or second-home buyers—two groups who account for most all-cash sales—were responsible for 17% of all home purchases in December, up from 15% a month earlier and 14% a year earlier.

Regional Breakdown

Northeast: Existing-home sales annual rate of 750,000; a decrease of 1.3% from November 2021 and 15.7% from December 2020. The median sales price of $384,600 increased 6.3% from December 2020.

Midwest: Existing-home sales annual rate of 1.5 million; a decrease of 1.3% from November 2021 and 2.6% from December 2020. The median sales price of $256,900 increased 10% from December 2020.

South: Existing-home sales annual rate of 2.7 million; a decrease of 6.3% from November 2021 and 5.3% from December 2020. The median sales price of $323,000 increased 20.2% from December 2020.

West: Existing-home sales annual rate of 1.23 million; a decrease of 6.8% from November 2021 and 10.2% from December 2020. The median sales price of $507,100 increased 8.4% from December 2020.