Robust home sales in the second half of the year surprised many economists while offering a rare bright spot for an economy run aground by closed businesses and mounting job losses during the Covid-19 pandemic.
Pandemic-driven job losses were concentrated in lower-paying industries, while households with higher pay and the resources to buy a new home weathered the downturn better. The pandemic prompted many of them to leave big cities for suburbs or smaller towns, while record-low borrowing rates made the decision to trade up easier. Once shelter-in-place restrictions eased, sales took off in June and have rarely flagged since then.
“It’s totally because of the pandemic,” said Brittany McCreary, who with her husband last month bought their first home, a four-bedroom stone farmhouse, in York, Pa., after leaving the Chicago area. “We’re glad we’re not renting anymore. We always wanted to buy.”
Existing-home sales rose 0.7% in December from November to a seasonally adjusted annual rate of 6.76 million, the National Association of Realtors said Friday. The December sales marked a 22% increase from a year earlier.
Strong house-buying demand is expected to continue this year, economists say, spurring more economic activity like home construction and sales of furniture and home goods. But a shortage of houses for sale is pushing home prices higher, making it costlier for renters trying to enter homeownership.
“Homeowners are smiling, because they are seeing price increases,” said Lawrence Yun, NAR’s chief economist. “The frustration is coming from the first-time buyers.”
Existing-home sales, which make up the bulk of the housing market, totaled 5.64 million in 2020, up 5.6% from 2019 and the highest level since the 2006 pace of 6.48 million, NAR said.
Economists say today’s housing market is less risky than during that boom 14 years ago. Mortgage lending standards are tighter, and the supply of homes on the market is lower relative to demand. Many homeowners facing financial difficulties can also take advantage of current policies allowing them to skip monthly payments and make them up later.
The housing market was poised for a strong year in early 2020, as interest rates fell and the large millennial generation continued to age into its prime homebuying years. Home sales then plunged in the spring due to widespread shelter-in-place restrictions, before quickly rebounding in the summer and fall.
“The real important driver has been the record low level of mortgage rates…which really enhanced affordability for home buyers,” said Frank Nothaft, chief economist at housing-data provider CoreLogic Inc.
For the week ended Thursday, the average rate on a 30-year fixed rate mortgage was 2.77%, down from 3.6% a year earlier, said Freddie Mac.
While demand has climbed, supply remains tight. Sellers remain wary of listing their homes for sale, partly due to concerns about virus transmission, real-estate agents say.
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There were 1.07 million homes for sale at the end of December, down 23% from December 2019, according to NAR. At the current sales pace, there was a 1.9-month supply of homes on the market at the end of December, a record low.
That inventory crunch has spurred new-home construction. Housing starts, a measure of U.S. home-building, rose 5.8% in December from November to the highest seasonally adjusted annual rate since 2006, the Commerce Department said Thursday. Home builder confidence in the single-family housing market rose to record highs in the second half of last year, too.
The median existing-home price rose 12.9% in December from a year earlier to $309,800, near the record $313,000 reached in October, NAR said. For the year overall, the median price rose 9% to $296,500.
Still, the housing market’s momentum is expected to continue as mortgage rates remain low. Increased vaccination rates could prompt more sellers to enter the market later this year.
“There’s still demand that’s not being met,” said Doug Duncan, chief economist for Fannie Mae.
For the full year, existing-home sales rose the most in the South, at 7%, and in the Midwest, at 6.4%. The South also posted the biggest year-over-year gain in 2019.
In Charlotte, N.C., demand is robust from buyers moving from other states seeking a cheaper cost of living, said Wendy Dickinson of Coldwell Banker. First-time buyers are also eager to take advantage of the low rates, she said.
“When houses hit the market here, it’s very, very typical for them to go into multiple offers immediately,” she said.