LOS ANGELES (AP) – U.S. home sales slumped at the slowest pace in nearly a decade, as rising mortgage rates and sky-high prices in 2022 made homeownership out of reach for many Americans.
The National Association of Realtors said Friday that existing U.S. home sales totaled 5.03 million last year, down 17.8% from 2021. It’s the weakest year for home sales since 2014 and the biggest annual decline since 2008, during the real estate crisis of the last 2000s.
The average national home price for the whole of last year rose 10.2% to $386,300, according to NAR, and it’s up 42% from 2019, before ultra-low mortgage rates and pandemic-driven demand roiled the market. That means an average increase in home wealth of $114,000 over three years.
“So homeowners have done well in this housing market from 2019 through Covid to now,” said Lawrence Yun, NAR’s chief economist. “The only major downside to home sales is home prices, which have risen dramatically, much faster than people’s incomes.”
Mortgage rates more than doubled in 2022, climbing to a two-decade high of 7.08% in the fall as the Federal Reserve continued to hike interest rates to cool the economy and tame inflation. Home sales slowed from a rapid pace earlier in the year as rising borrowing costs limited the purchasing power of home seekers.
When interest rates rise, they can add hundreds of dollars to monthly mortgage payments. That can deter homeowners who have negotiated a far lower interest rate in recent years from buying a new home and price out many potential buyers. In 2022, first-time buyers accounted for just 26% of all home sales, the NAR said.
The average rate on 30-year mortgages fell to 6.15% this week, the lowest since September, according to mortgage buyer Freddie Mac. Still, it remains almost double the average rate of 3.56% a year ago.
Mortgage rates are likely to remain a significant constraint as the US Federal Reserve keeps signaling its intention to raise short-term rates further. As inflation began to slow, some Fed officials claim that the central bank needs to keep raising interest rates to ensure its job is done.
While mortgage rates don’t necessarily reflect Fed rate hikes, they tend to follow the yield on the 10-year Treasury note. The return is influenced by a variety of factors, including expectations for future inflation and global demand for US Treasuries.
Existing home sales fell for the 11th straight month at a seasonally adjusted annualized rate of 4.02 million in December, the NAR said. That’s slightly better than economists expected, according to FactSet.
December sales were down 34% year over year. Aside from the sharp slowdown in sales that occurred in May 2020 just before the pandemic began, sales slipped last month to their slowest annual pace since November 2010.
“Mortgage rates have been falling for the past few weeks, so I’m very confident that the worst is probably coming to an end in home sales,” Yun said. “Maybe that last month figure is the cyclical bottom.”
Despite the slowdown, home prices continued to rise last month, albeit at a slower pace than at the start of the year. The national median home selling price rose 2.3% year over year to $366,900 in December, the NAR said.
Even if prices stabilize, there are stubbornly few homes on the market. The stock of homes for sale fell to 970,000 homes for the fifth straight month in December. That’s down 13.4% from the previous month but up 10.2% from December 2021 and equates to 2.9 months of supply at the current pace of sales, the NAR said. In a more balanced market between buyers and sellers, there is a 5 to 6 month supply.
Homebuyers should have more choices in the spring, when stocks traditionally pick up.
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