LOS ANGELES (AP) — U.S. home sales tumbled to the slowest pace in nearly a decade as soaring mortgage rates and sky high prices in 2022 pushed 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, a 17.8% decline from 2021. That is the weakest year for home sales since 2014 and the biggest annual decline since 2008, during the housing crisis of the late 2000s.
The median national home price for all of last year jumped 10.2% to $386,300, the NAR said, and it’s up 42% from 2019, before ultra-low mortgage rates and pandemic-fueled demand sent the market into a frenzy. That translates to a median $114,000 increase in housing wealth in three years.
“So, homeowners have done well during this housing (market) from 2019 through Covid until now,” said Lawrence Yun, the NAR’s chief economist. “The one big negative for home sales is home prices, which have risen dramatically, much faster than peoples’ income.”
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 boost its key lending rate in a quest to cool the economy and tame inflation. Home sales slowed from a torrid pace at the start of the year as the surge in borrowing costs limited home hunters’ buying power.
As rates rise, they can add hundreds of dollars to monthly mortgage payments. That can discourage homeowners who locked in a far lower rate the last couple of years from buying a new home, and price out many would-be buyers. In 2022, first-time buyers accounted for only 26% of all home sales, the NAR said.
The average rate on a 30-year mortgage rate fell this week to 6.15%, its lowest level since September, according to mortgage buyer Freddie Mac. Still, it remains nearly double the 3.56% average rate a year ago.
Mortgage rates are likely to remain a significant hurdle with the Federal Reserve consistently signaling its intent to keep raising short-term rates. While inflation has begun to slow, some Fed officials maintain that the central bank needs to keep hiking rates to make sure its job is done.
While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including expectations for future inflation and global demand for U.S. Treasurys.
Existing home sales fell in December for the 11th month in a row to a seasonally adjusted annual rate of 4.02 million, the NAR said. That’s slightly better than what economists were expecting, according to FactSet.
December’s sales sank 34% from a year earlier. Excluding the steep slowdown in sales that occurred in May 2020 near the start of the pandemic, sales last month skidded to the slowest annual pace since November 2010.
“Mortgage rates have fallen in the recent past weeks, so I’m very hopeful that the worst in home sales (is) probably coming to an end,” Yun said. “Maybe this latest monthly figure will be the cyclical low point.”
Despite the slowdown, home prices continued to rise last month, albeit at a slower pace than earlier in the year. The national median home sales price rose 2.3% in December from a year earlier to $366,900, the NAR said.
Even if prices do stabilize, there are a stubbornly low number of homes on the market. The inventory of homes for sale fell for the fifth consecutive month in December, to 970,000 homes. That’s down 13.4% from the previous month, but up 10.2% from December 2021, and amounts to a 2.9-month supply at the current sales pace, the NAR said. In a more balanced market between buyers and sellers, there is a 5- to 6-month supply.
Homebuyers should have more to choose from in the spring when inventory traditionally picks up.