Economic Snapshot: Despite December decrease, existing home sales have best year since 2006

Photo credit to Dan Moyle

Existing home sales decreased in December and year over year, yet the National Association of Realtors are still very pleased with 2016’s overall results.

Existing home sales

Existing home sales finished 2016 at 5.45 million sales, a 2.8 percent decrease from an upwardly revised 5.65 million in November. Sales are 0.7 percent higher than the previous year.

NAR is still very positive about existing home sales, calling 2016 the best year in the past decade as sales are now at their highest level since 2006, when sales were 6.48 million.

Lawrence Yun, NAR chief economist, says the housing market’s best year since the Great Recession ended on a healthy but somewhat softer note. “Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” he said. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.”

Total housing inventory at the end of December dropped 10.8 percent to 1.65 million existing homes available for sales, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than the previous year, has fallen year-over-year for 19 straight months and is at a supply of 3.6 months at the current sales pace, down from 3.9 months in December 2015.

“While a lack of listings and fast rising home prices was a headwind all year, the surge in rates since early November ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 came to an end,” Yun added.

The median existing-home price for all housing types was $232,200 in December, up 4.0 percent from the previous year. December’s price increase marks the 58th consecutive month of year-over-year gains.

“Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” said Yun. “Given current population and economic growth trends, housing starts should be in the range of 1.5 million to 1.6 million completions and not stuck at recessionary levels. More needs to be done to address the regulatory and cost burdens preventing builders from ramping up production.”

First-time buyers were 32 percent of the sales in December, unchanged from both November and a year ago. First-time buyers also represented 32 percent of sales in all of 2016.

“Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it’s not getting any easier to be a first-time buyer,” said Yun. “It’ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”

New home sales

Sales of new single-family houses were at a seasonally adjusted annual rate of 536,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.4 percent below the revised November rate of 598,000 and 0.4 percent below the December 2015 estimate of 538,000.

The median sales price of new houses sold in December 2016 was $322,000 and the average sales price was $384,000. The seasonally adjusted estimate of new houses for sale at the end of December was 259,000, which represents a supply of 5.8 months at the current sales rate.

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