US home sales fell to a 12-year low; A glimmer of hope appears

WASHINGTON (Reuters) – U.S. existing home sales fell to a 12-year low in December, but falling mortgage rates fueled cautious optimism that the beleaguered housing market may be about to find a floor.

The report from the National Association of Realtors on Friday also showed that the median home price was rising at the slowest pace since early in the COVID-19 pandemic as sellers in some parts of the country resorted to offering discounts.

The Fed’s fastest rate-raising cycle since the 1980s has pushed housing into recession.

“Existing home sales are a bit behind,” said Conrad D. Quadros, chief economic advisor at Brean Capital in New York. “A decline in mortgage rates could help support housing activity in the coming months.”

Existing home sales, which are calculated at contract close, fell 1.5% to a seasonally adjusted annual rate of 4.02 million units last month, the lowest level since November 2010. It marked the 11th consecutive monthly decline in sales, the longest of a stretch like this since 1999.

Sales declined in the Northeast, South and Midwest. They have not changed in the West. Economists polled by Reuters had expected home sales to drop to a rate of 3.96 million units. The December data likely reflects contracts signed about two months ago.

Home resales, which account for a large portion of home sales in the United States, fell 34.0% year over year in December. It fell 17.8% to 5.03 million units in 2022, the lowest annual total since 2014 and the steepest annual decline since 2008.

A continued decline in sales, which means lower brokerage commissions, was the latest indication that residential investment may have contracted in the fourth quarter, the seventh consecutive quarterly decline.

This would be the longest such streak since the collapse of the housing bubble led to the Great Recession.

While a National Association of Home Builders survey this week showed confidence among single-family homebuilders improved in January, morale remained low.

Single-family home construction rebounded in December, but future building permits dropped more than 2-1/2 years and, outside of a pandemic downturn, were the lowest since February 2016.

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. US Treasury bond prices fell.

Mortgage interest rate

However, the worst of the housing market rout is probably too late. The 30-year fixed mortgage rate fell to an average of 6.15% this week, the lowest level since mid-September, according to data from mortgage agency Freddie Mac.

The rate is down from 6.33% in the previous week and down from an average of 7.08% in the early fourth quarter, the highest since 2002. However, it is still well above the 3.56% average during the same period last year.

The median existing home price rose 2.3% from a year earlier to $366,900 in December, with NAR chief economist Lawrence Yoon noting that “markets in roughly half the country are more likely to offer potential buyers a discount than a year ago.”

The slightest rate increase since May 2020, combined with a downturn in mortgage rates, could help improve affordability going forward, though much will depend on supply. Applications for home loans have increased so far this year, in a sign that there are eager buyers waiting in the wings.

Home prices rose 10.2% in 2022, buoyed by an acute shortage of homes for sale. The total housing stock was 970,000 units last year. While that was an increase from 880,000 units in 2021, supply was the second lowest on record.

“House price growth is likely to continue to slow and we look for it to turn negative in 2023,” said Nancy Vanden Houten, US economist at Oxford Economics in New York. “The limited supply of homes for sale will prevent a sharp decline.”

In December, there were 970,000 previously owned homes on the market, down 13.4% from November but up 10.2% from a year ago. And at the pace of December sales, it would take 2.9 months to deplete existing inventory of existing homes, up from 1.7 months a year ago. This is well below the 9.6-month supply at the start of the 2007-2009 recession.

Although tight inventory continues to be a hurdle for buyers, the lack of oversupply means the housing market is unlikely to experience the dramatic collapse it experienced during the Great Recession.

The four to seven month supply is seen as a healthy balance between supply and demand. Properties typically stayed on the market for 26 days last month, up from 24 days in November.

57 percent of homes sold in December had been on the market for less than a month. First-time buyers accounted for 31% of sales, up from 30% a year ago. Cash sales accounted for 28% of transactions compared to 23% a year ago. Distressed sales, foreclosures, and short sales accounted for just 1% of sales in December.

“While stabilizing affordability will be good news for potential homebuyers, a lack of available inventory may still be a drag on homebuying activity,” said Orphe Divounguy, chief economist at Zillow.

(Reporting by Lucia Moticani) Editing by Dan Burns and Andrea Ricci

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