The shrinking stock, especially among cheaper houses, was one of the main causes of these rising prices. The year ended with the lowest number of available homes ever.
Lawrence Yun, NAR’s chief economist, predicts that strong housing activity will continue this year.
“While mortgage rates are expected to rise, they will continue to hover around record lows of about 3%,” said Yun. “Expect economic conditions to improve with additional incentives and the distribution of vaccines already underway.”
But Yun cautions that the current market is not what he would describe as a “healthy market,” where house prices are rising in line with income growth and buyers have plenty of time to make informed decisions about a major purchase.
“In that sense, it’s unhealthy,” said Yun. “Buyers are making hasty decisions.”
“Homeowners smile because they see price increases,” said Yun. “They can trade in for their next home purchase. But the frustration comes from the starters.”
This is because there are fewer homes for sale than ever before and there is more competition for the homes for sale.
Stocks are at an all-time low, according to NAR, with 23% fewer homes for sale in December than a year ago. And the number of homes available to buy has fallen across all price points, except for those at $ 750,000 and above.
“More acute affordability issues will arise if supplies remain so tight and house prices continue to accelerate,” said Joel Kan, the Mortgage Bankers Association’s Associate Vice President of Economic and Industry Forecasting. “This, in turn, would be especially challenging for first-time homebuyers, who account for a third of all home sales.”
The strong sales pace of existing homes in the latter part of the year continued into December with sales of existing homes – including single-family homes, terraced houses, condominiums and cooperatives – up 22% from a year before to a seasonally adjusted annual rate of 6.76 million.
Homes at the top of the market continued to sell faster than those at the bottom of the market. While sales of homes priced at $ 100,000 and less fell 15% in December from the previous year, sales were up 76% for homes selling between $ 750,000 and $ 1 million. For homes of $ 1 million and above, the number of sales has essentially doubled.
That downside drop is due to a persistently low inventory, Yun said.
“If we had more inventory at the lower price, we would sell even more homes than reported.”