Sales for existing homes, which make up a majority of the housing market, slumped to the lowest level since 1995 as rising prices and sky-rocketing mortgage rates increased unaffordability, according to the National Association of Realtors (NAR).
Existing home sales sank 1.0% in December compared to the previous month, falling 6.2% annually, with 4.09 million homes being sold for the year, according to a report from the NAR. The slump in sales follows a year of rising prices due to inflation, constrained supply and sky-high mortgage rates, which at one point neared 8%, suppressing demand and Americans’ ability to buy in the housing market.
“Despite sluggish home sales, 85 million homeowning households enjoyed further gains in housing wealth,” Lawrence Yun, NAR Chief Economist, said in the release. “Obviously, the recent, rapid three-year rise in home prices is unsustainable. If price increases continue at the current pace, the country could accelerate into haves and have-nots. Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”
The median existing-home price increased 4.4% year-over-year in December to $382,600 after rising for six months consecutively, previously reaching a record median price of $389,000 earlier in 2023, according to the NAR. The number of existing homes that are sitting unsold rose 11.5% from November to December, totaling around 1 million, but up 4.2% from a year ago.
Mortgage rates reached a recent peak on Oct. 26, 2023, at 7.79% after rising rapidly from just 2.65% at the beginning of 2021, according to the Federal Reserve Bank of St. Louis. Interest rates for mortgages have faced upward pressure from hikes by the Federal Reserve of the federal funds rate, which currently sits in a range of 5.25% and 5.50%, the highest in 22 years.
The price of shelter has consistently outpaced inflation under President Joe Biden, rising 18.6% since the president took office in January 2021, compared to a 17.6% general increase in prices across the economy. Shelter prices rose 6.2% year-over-year as of December, far higher than the current annual rate of 3.4%.
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