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The Resid RE party is over. Ouch!

U.S. Existing-Home Sales Slid Last Year as Interest Rates Surged

Sales of previously owned homes dropped 17.8% to lowest level since 2014


December marked the 11th straight monthly decrease in sales of existing homes.


By Nicole Friedman, WSJ

Updated Jan. 20, 2023 1:52 pm ET


U.S. existing-home sales fell again in December, concluding the weakest year for sales activity since 2014.


Sales of previously owned homes, which make up most of the housing market, slid 17.8% in 2022 from the prior year to 5.03 million, the National Association of Realtors said Friday.


On a monthly basis, sales fell 1.5% in December, a record 11th straight monthly decline. December sales fell to a seasonally adjusted annual rate of 4.02 million, NAR said, the weakest rate since November 2010.


Sales in December were down 34% from a year earlier.


The pandemic-fueled housing boom of 2020 and 2021 carried over to the start of last year. Then the Federal Reserve’s effort to cool the economy and curb inflation by raising interest rates flattened housing-market activity as borrowing rates more than doubled. In October, mortgage interest rates climbed to 7.08%, a two-decade high.


Monthly costs for prospective home buyers, already steep due to fast-rising home prices, increased by hundreds of dollars or more, prompting many to stop shopping altogether. NAR’s measure of housing affordability fell in October to its lowest level since September 1985.


Many prospective sellers, meanwhile, purchased their homes or refinanced their mortgages during the period when rates were much lower. Many homeowners have mortgage rates below 4% and are unwilling to give up their current rate for a higher one on a new home, a big reason why the supply of homes for sale remains unusually tight.


More recently, mortgage rates have declined. The average rate on a 30-year fixed mortgage fell to 6.15% this week, the lowest rate since September. Mortgage applications for home purchases rose 25% on a seasonally adjusted basis in the week ended Jan. 13 from the prior week, according to the Mortgage Bankers Association.


“Mortgage rates have fallen over these past few weeks, so I’m very hopeful that the worst in home sales is probably coming to an end,” said Lawrence Yun, NAR’s chief economist.


Declining borrowing costs could lure some buyers back to the market, said Mark Fleming, chief economist at First American Financial Corp. But many sellers are still reluctant to trade in their current low mortgage rate for a higher one.


“We are getting a little bit of an affordability relief” for buyers, he said. But “what little demand is out there is still running up against short supply.”


Other parts of the economy have also shown signs of cooling. Retail spending fell in December at the sharpest pace of 2022. Hiring and wage growth also eased last month and U.S. commerce with the rest of the world declined significantly in November.


Home prices have slid from their springtime peaks and are lower than a year ago in some markets, including California, Phoenix, and Austin, Texas, according to local real-estate groups.


The national median existing-home price rose 2.3% in December from a year earlier to $366,900, NAR said. Prices fell month-over-month for the sixth straight month after reaching a record high of $413,800 in June.


Housing is one of the most weighted categories when tracking inflation, but it’s also one of the most complicated to measure. WSJ’s David Harrison explains how the shelter index is calculated, and why it can muddy the inflation outlook for the Fed. Illustration: Laura Kammermann

The inventory of homes for sale remains well below normal for this time of year, keeping home prices from sliding further, say economists and real-estate agents.


The housing market typically slows in the winter, as many shoppers take a break from house hunting during the holidays and some families with children don’t want to move during the school year.


Nationally, there were 970,000 homes for sale or under contract at the end of December, down 13.4% from November and up 10.2% from December 2021, NAR said. At the current sales pace, there was a 2.9-month supply of homes on the market at the end of December.


Patrick and Katerina Reynolds have been looking to buy their first house around New York’s Hudson Valley and southwest Connecticut for about a year. While the market has slowed, there is still little to choose from in their price range, Mr. Reynolds said.


“It’s all last year’s inventory right now, and I’m just kind of waiting for a fresh crop of homes,” he said. “This is slim pickings.”


Real-estate agents say they expect activity to pick up in the spring, though not to the frenzied levels of 2020 and 2021.


“Lack of inventory has been the reason people have not been buying,” said Terri Williams, a real-estate agent at Re/Max Preferred Properties in Sevierville, Tenn. “As spring comes on and more properties come on the market and people will be a little more used to 6% [mortgage rates], I think that we’ll see more people jump back on the ‘I want to be a homeowner’ bandwagon.”


The typical home sold in December was on the market for 26 days, up from 24 days from the prior month, NAR said.


Homes typically go under contract a month or two before the contract closes, so the December sales data largely reflect purchase decisions made in November and October.


David Forrai, who lives in Dayton, Ohio, listed a condo he owns in Lima, Ohio, for sale in October for about $110,000 after the tenant moved out. He hasn’t received any offers yet.


“I’m a little disappointed that I haven’t seen more traffic,” he said, because he priced the condo below similar properties for sale nearby. “I thought as rates came down a little bit that that would motivate people.”


The share of first-time buyers in the market was 31% in December, up from 30% a year earlier. About 28% of December existing-home sales were purchased in cash, up from 23% in the same month a year ago, NAR said.


Existing-home sales fell the most month-over-month in the South, down 2.2%, and in the Northeast, down 1.9%.


Home builders are offering incentives to buyers and cutting prices in some markets in response to lower demand.


A measure of U.S. home-builder confidence rose in January, ending a 12-month streak of declines, the National Association of Home Builders said this week.


Housing starts, a measure of U.S. home-building, fell 1.4% in December from November, the Commerce Department said this week. Residential permits, which can be a bellwether for future home construction, fell 1.6%.


News Corp, owner of the Journal, also operates Realtor.com under license from NAR.


Write to Nicole Friedman at nicole.friedman@wsj.com

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