Existing Home Sales Slide to Finish 2016

Existing home sales finished the year in a bad news/good news scenario.

The bad news: the National Association of Realtors reported existing home sales slid in December, falling by 2.8 percent to a seasonally adjusted rate of 4.49 million from 5.65 million in November.

Single-family home sales fell by 1.8 percent to 4.88 million in December from 4.97 million in November, but rose by 1.5 percent above the 4.81 million pace a year ago. The median existing single-family home price was $233,500 in December, up 3.8 percent from December 2015. Existing condominium and co-op sales dropped by 10.3 percent to 610,000 units in December and by 4.7 percent from a year ago. The median existing condo price was $221,600 in December, 5.5 percent above a year ago.

The good news: NAR said existing home sales closed out 2016 as the best year in a decade. Total existing home sales finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million). Sales rose by 0.7 percent from a year ago.

“Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market,” said NAR Chief Economist Lawrence Yun. “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.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted trends seem to be reverting to pre-election rates.

“Prior to the election, the 30-year fixed mortgage rate averaged 3.5 percent in 2016, and purchase applications were trending lower,” Vitner said. “In November, applications jumped as borrowers rushed to lock-in rates. It appears election euphoria is dissipating as the mortgage rate is now more than 20 basis points lower than the December spike and the spread between mortgage rates and the 10-year Treasury yield is narrowing along with a drop in applications.”

Sales slid across most regions. Sales in the South in December were unchanged at 2.25 million and are 0.4 percent above a year ago. The median price in the South was $207,600, up 6.5 percent from a year ago. Sales in the West fell by 4.8 percent to 1.20 million in December and fell by 1.6 percent from a year ago. The median price in the West rose to $341,000, up 6.0 percent from a year ago.

Sales in the Northeast slid by 6.2 percent to an annual rate of 760,000, but were 2.7 percent above a year ago. The median price in the Northeast was $245,900, 3.8 percent below a year ago. In the Midwest, sales decreased by 3.8 percent to 1.28 million in December, but were 2.4 percent above a year ago. The median price in the Midwest rose to $178,400, up 4.6 percent from a year ago.

The median existing-home price for all housing types in December rose to $232,200, up 4.0 percent from December 2015 ($223,200). December’s price increase marks the 58th consecutive month of year-over-year gains.

Total housing inventory at the end of December dropped by 10.8 percent to 1.65 million existing homes available for sale, the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015).

“Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction,” said 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.”

First-time buyers represented 32 percent of sales in December, unchanged both from November and a year ago. First-time buyers also represented 32 percent of sales in all of 2016.

Properties typically stayed on the market for 52 days in December, up from 43 days in November but down from a year ago (58 days). Short sales were on the market the longest at a median of 97 days in December, while foreclosures sold in 53 days and non-distressed homes took 50 days. Thirty-seven percent of homes sold in December were on the market for less than a month.

NAR said all-cash sales represented 21 percent of transactions in December, unchanged from November and down from 24 percent a year ago. Individual investors purchased 15 percent of homes in December, up from 12 percent in November and unchanged from a year ago. Fifty-nine percent of investors paid in cash in December.

Distressed sales rose to 7 percent in December, up from 6 percent in November but down from 8 percent a year ago. Five percent of December sales were foreclosures; 2 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in December (17 percent in November), while short sales were discounted 10 percent (16 percent in November).