Inventory shrinkage, especially among lower-priced households, was one of the biggest drivers of rising prices. The year ended with the smallest number of homes ever available.
Lawrence Yun, chief economist at NAR, predicts that strong activity in the housing market will continue this year.
“While mortgage rates are expected to rise, they will continue to hover near record lows of around 3%,” said Yun. “We hope that economic conditions will improve with additional stimulus and vaccine distribution already underway.”
But Yun warns that the current market is not what he would describe as a “healthy market”, in which house prices rise as income rises and buyers have enough time to make informed decisions about an important purchase.
“In that sense, it is not healthy,” said Yun. “Buyers are making hasty decisions.”
“The owners are smiling because they are seeing price increases,” said Yun. “They can negotiate until the next home purchase. But the frustration is coming from first-time buyers.”
That’s because there are fewer houses to buy than ever before and more competition for the houses for sale.
Inventory is down, according to the NAR, with 23% fewer homes for sale in December than a year ago. And the number of houses available for purchase has dropped in all price categories, except those of $ 750,000 and above.
“More acute accessibility challenges will arise if inventory remains tight and house price growth continues to accelerate,” said Joel Kan, associate vice president for economic and industry forecasts at the Mortgage Bankers Association. “This, in turn, would be especially challenging for first time home buyers, who account for a third of all home sales.”
The strong pace of sales of existing homes seen in the latter part of the year continued into December with sales of existing homes – which include single-family homes, townhomes, condominiums and cooperatives – an increase of 22% over the previous year to seasonally adjusted annual rate of 6.76 million.
Homes at the top end of the market continued to sell at a faster rate than those at the bottom end of the market. While sales of homes priced at $ 100,000 or less fell 15% in December from the previous year, sales increased 76% for homes sold between $ 750,000 and $ 1 million. For homes of $ 1 million or more, the number of sales has almost doubled.
That lower end drop is due to persistent low stock, Yun said.
“If we had more inventory in the lower price ranges, we would have even higher house sales than reported.”