The sign for a property for sale shows the house as “under contract” in Washington, DC, November 19, 2020.
Saul Loeb | AFP | Getty Images
Demand driven by the pandemic has pushed total 2020 home sales to the highest level since 2006.
Even so, even the most avid buyers are hitting the barriers of today’s real estate market. Record low supply and record high prices are limiting exceptionally high demand.
Closed sales of existing homes in December increased by just 0.7% from November, to an annualized rate with a seasonal adjustment of 6.76 million units, according to the National Association of Realtors. Sales were 22% higher than in December 2019.
As unexpected as a global pandemic was, it was also the reaction of home buyers. After plummeting in March and April, sales suddenly started to rise. Total sales volume at the end of the year ended at 5.64 million units, the highest level since 2006 and much stronger than predicted before the pandemic. Buyers were driven by the desire for larger, suburban homes with dedicated spaces for work and school.
“Home sales could reach 8 million if we had more inventory,” said Lawrence Yun, chief economist at Realtors. “Mortgage rates are expected to remain very low throughout 2021, although we may have seen the lowest already.”
The strong demand exacerbated what was already a low stock of houses for sale at the beginning of the year. At the end of December, the stock was only 1.07 million homes for sale, a drop of 23% year on year. At the current sales location, this represents 1.9 month inventory. This is the smallest number of homes since real estate agents started monitoring this metric in 1982.
Low supply and strong demand continued to increase pressure on home prices. The average price of an existing home sold in December was $ 309,800, an increase of 12.9% compared to December 2019 and the highest average December price ever recorded.
Part of the strong increase in the average price is that home sales are stronger at the higher end of the market, where there is more supply. Sales of homes priced below $ 100,000 fell 15% per year in December, while sales of homes priced between $ 500,000 and $ 750,000 increased 65% per year. Home sales of more than $ 1 million increased 94% over the previous year.
Fierce competition for homes has also led to more buyers making cash offers.
First-time buyers accounted for 31% of sales. They generally represent about 40% historically.
It also took just 21 days on average to sell a home in December.
“It is unusual, because every year, during the holiday season, we would see an increase in days on the market, but not this year,” said Yun.