US home sales hit rock bottom in December, but springtime rebound expected

The U.S. housing market continued its downward spiral in December, with sales of existing homes falling for the 12th straight month compared to the year before, a CNBC report states. However, industry experts are offering signs of hope for a spring rebound as mortgage rates ease and inventory creeps up.

According to a CNBC report, sales dropped 1 per cent from November to a seasonally adjusted annualized rate of 3.78 million units, marking the lowest level since August 2010. Compared to December 2022, the decline was even steeper at 6.2 per cent, bringing the year-end tally to a dismal 4.09 million units – the worst since 1995.

Regionally, the picture was mixed, with sales remaining flat in the Northeast and falling in the Midwest and South. However, a surprising 7.8 per cent jump in the West offered a glimmer of hope. Lawrence Yun, chief economist at the National Association of Realtors (NAR), attributed the overall decline to higher mortgage rates that peaked around 8 per cent in October before dipping into the 7 per cent range in November. Today, rates sit at a more palatable 6.89 per cent.

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"The latest month's sales look to be the bottom before inevitably turning higher in the new year," Yun predicted in a press release. "Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months."

While Yun's optimism seems justified, existing inventory remains tight, falling 11.5 per cent from November but still up 4.2 per cent year-over-year. The December count of 1 million homes for sale translates to a 3.2-month supply at the current sales pace – a far cry from the six-month buffer considered balanced between buyers and sellers.

Despite the inventory crunch, home prices continued their upward climb. The median price in December hit $382,600, a 4.4 per cent increase from December 2022 and the sixth consecutive month of year-over-year gains. The full-year median price of $389,800 also set a new record.

Homes spent an average of 29 days on the market in December, compared to 25 in November. Additionally, the share of all-cash sales rose from 27 per cent to 29 per cent. Notably, individual investors, who typically drive a significant portion of cash purchases, reduced their activity, buying 16 per cent of homes compared to 18 per cent the prior month.

This pullback from investors could spell good news for first-time buyers, who have been disproportionately priced out of the market. Their share of December sales dropped to 29 per cent, down from 31 per cent a year ago and significantly lower than the historical average of 40 per cent.

A recent Realtor.com study suggests this trend may continue, offering hope for first-time buyers in 2024. Danielle Hale, chief economist at Realtor.com, tells CNBC, "With rents continuing to ease and more multi-family homes entering the market for rent, investors may continue to tread more cautiously in the housing market. This would mean one less source of competition for potential first-time home buyers who are approaching the 2024 market with optimism despite the challenge of trying to buy a home at a below-median price point, one that investors also often target."