Existing-home sales had a banner 2016…
…amounting to 5.45 million—an increase from 5.25 million in 2015 and a decade-high from 6.48 million in 2006, according to the National Association of REALTORS® (NAR). Overall, 2016 was a “good year for the housing market,” says NAR Chief Economist Lawrence Yun.
“Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” Yun says. “However, higher mortgage rates and home prices combined with record low inventory levels stunted sales in much of the country in December.
“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,” says Yun.
Existing-home sales decreased 2.8 percent in December to an annual rate of 5.49 million, according to NAR, with a median price of $232,200. Inventory over the same period was swallowed up, sinking 10.8 percent to its lowest since 1999: 1.65 million, a 3.6-month supply.
“December’s disappointing numbers may be low in large part because people bought in November instead of December in order to lock in low mortgage rates,” says realtor.com® Senior Economist Joseph Kirchner. “A persistent decline in the number of homes on the market and prices increasing faster than incomes also have contributed.
“Several trends factored into these numbers,” Kirchner says. “When buyers began to anticipate mortgage rates in November, they rushed to lock in rates, which resulted in a bump in sales. At the same time, while new home construction completions in December were up 8.5 percent compared to a year ago, they were down 7.9 percent since November. And while incomes are rising, home prices are still rising faster.”
“Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” says 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.”
The average commitment rate for a 30-year, conventional fixed-rate mortgage surged in December to 4.20 percent from 3.77 percent in November, according to Freddie Mac. December’s average commitment rate was the highest rate since April 2014 (4.32 percent).
First-time buyers were 32 percent of sales in December, which is unchanged both from November and a year ago. First-time buyers also represented 32 percent of sales in all of 2016. According to NAR’s 2016 Profile of Home Buyers and Sellers, the annual share of first-time buyers was 35 percent.
“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,” Yun says. “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.”
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