The 2020 homebuying spree continued in December, pushing the year’s sales to a 14-year high as people took advantage of ultra-low interest rates and sought more space to socially distance and work from home.
Sales of previously owned homes rose last year to 5.64 million, the most since December 2006, the National Association of Realtors (NAR) said Friday. In 2019, 5.34 million homes were sold.
In December, sales rose 0.7% from November to a seasonally adjusted annual rate of 6.76 million, topping the 6.55 million estimate of economists polled by Moody’s Analytics. The strong end to 2020 followed a plunge in the spring when pandemic-triggered lockdowns slowed the pace of buying.
The number of unsold homes on the market at the end of December fell 16.4% from November to 1.07 million, pushing housing inventory to a record-low 1.9-month supply at the current sales pace (NAR started tracking this in 1982). Seventy percent of the homes sold in December were on the market for less than a month, NAR said.
Low interest rates are helping to fuel the housing market. The 30-year fixed mortgage rate was 2.77% in late January, around 83 basis points below its year-ago level, and near its lowest level on record going back to the early 1970s, noted Brent Campbell, economist at Moody’s Analytics, in a research note.
“The primary challenge for homebuyers in 2021 will be lower affordability spurred by exceedingly tight inventory,” Campbell said.
In part because of tight inventories, the median existing-home price in December was $309,800, up 12.9% from the same time last year, with every region reporting price increases. December's national price increase marks 106 straight months of year-over-year gains, NAR noted.
But some relief may be on the horizon as builders ramp up to meet demand.
"To their credit, homebuilders and construction companies have increased efforts to build,” said Lawrence Yun, NAR's chief economist, in a press release. "However, it will take vigorous new home construction in 2021 and in 2022 to adequately furnish the market to properly meet the demand."
In December, new residential home constructions soared to its highest annual pace since 2006, according to data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development. Overall housing starts in December rose 5.8% from November to a seasonally adjusted annual rate of 1.669 million units, with single-family homes accounting for all the gains. Construction of single-family homes rose for the eighth consecutive month, up 12% from November, while the rate of new buildings with five or more units fell.
Permits to build new homes also rose 4.5% in December from the prior month to a seasonally adjusted annual rate of 1.709 million, reaching the highest level since August 2006. Again, single family homes drove the increase, as permits for constructing homes with five or more units dropped 2%.