Declining inventory, especially for lower priced homes, was one of the biggest drivers of rising prices. The year ended with the lowest number of homes ever available.
Lawrence Yun, the chief economist of NAR, predicts that strong activity in the real estate market will continue until this year.
“Although mortgage rates are expected to rise, they will continue to be near record lows at around 3%,” Yun said. “Expect economic conditions to improve with future additional incentives and the distribution of vaccines already underway.”
But Yun warns that the current market is not what he would describe as a “healthy market” in which house prices rise in line with rising incomes and buyers have enough time to make informed decisions about a major purchase.
“In that sense, it is unhealthy,” Yun said. “Buyers are making hasty decisions.”
“Homeowners are smiling because they see price increases,” Yun said. “They can trade until their next home purchase. But the frustration comes from first-time buyers.”
That’s because there are fewer homes to buy than ever before and more competition for homes that are for sale.
The inventory is at a minimum, according to the NAR, with 23% fewer homes for sale in December than a year ago. And the number of homes available for purchase is low in all price categories, except for those of 750,000 USD and over.
“More acute accessibility challenges will arise if the stock remains so tight and housing prices continue to accelerate,” said Joel Kan, associate vice president of the Bank Mortgage Association for economic and industrial forecasts. “This, in turn, would be particularly difficult for first-time home buyers, who account for a third of total home sales.”
The strong pace of home sales in the latter part of the year continued through December, with sales of existing homes – which include single-family homes, townhouses, condominiums and co-ops – up 22% from a year earlier to a season adjusted annual rate of 6.76 million.
Houses at the upper end of the market continued to sell at a faster rate than those at the lower end of the market. While home sales at prices of $ 100,000 and below fell 15 percent in December from the previous year, sales rose 76 percent for homes sold for $ 750,000 to $ 1 million. For homes over $ 1 million, the number of sales has essentially doubled.
This decline at the lower end is due to the persistently low stock, Yun said.
“If we had more inventory at lower prices, we would have even higher home sales than is reported.”