A home for sale on December 17, 2020 in Scituate, Massachusetts.
Matt Stone | MediaNews Group | Getty Images
After five consecutive months of growth, existing home closed sales declined in November.
They fell 2.5% month on month to a seasonally adjusted annual rate of 6.69 million units, according to the National Association of Realtors. Sales increased by 25.8% compared to the previous year.
While the demand for home ownership is still high, partly due to the culture of the coronavirus pandemic, the supply is incredibly low. That hurts sales and affordability.
“This recent decline could be due to the fact that house prices are rising very rapidly. It could also be because job creation has stalled in recent months and consumer confidence has been hurt,” said Lawrence Yun, chief economist for the association. “No alarms or anything to worry about about the last monthly decline.”
At the end of November, only 1.28 million homes were up for sale. This is a 22% year-over-year decrease and equates to a 2.3 month supply at current sales speed. This is the lowest inventory count since realtors began collecting this metric in 1982. The number of new listings has increased by around 10% since November 2019, but demand is quickly sucking this supply up.
Homes were selling at the fastest pace ever, spending an average of just 21 days in the market. Last year, houses sold in 38 days, which was also considered fast.
The growing imbalance between supply and demand caused house prices to rise faster than the market could do. The average price for an existing home sold in November was $ 310,800, up 14.6% from November 2019.
This measure of the median price shows where selling is most active, at the high end of the market. Sales of homes below $ 100,000 were down 22% year over year. Prices from $ 100,000 to $ 250,000 rose only 2%. Sales at the high end of the market – $ 750,000 to $ 1 million – were up 85% year over year.
Low mortgage rates add fuel demand at any price. The average rate on the 30-year fixed-rate mortgage was just over 3% for much of October, but then fell to 2% in November and was at record lows for most of the month. This gave buyers more purchasing power, but also increased property prices, which were already overheated.
New home sales in October, as measured by signed contracts, were a whopping 41.5% higher than October 2019, according to the U.S. Census. Builders have benefited from the shortage of existing homes for sale, but they’re struggling with to keep up with demand.
Although December marks the traditionally slower season for residential property, pedestrian traffic of buyers, as measured by lockers at the front door of homes for sale, increased 16% year over year.
The National Association of Realtors is now forecasting total sales of around 5.7 million homes in 2020, the highest level in 14 years.
“Circumstances are far from returning to normal prior to the pandemic,” Yun said. “However, the recent stimulus package and the current vaccine distribution, as well as the continued very strong demand for home ownership, are set to see robust growth in 2021.”