Existing home sales decline in December, but up in 2017

December sales of existing homes in the United States were down considerably from the strong pace set in November, according to the National Association of Realtors. However, sales still showed a year-over-year increase, with more existing homes sold in 2017 than in 2016.

In its latest monthly report on sales of existing single-family homes, co-ops, condominiums, and townhouses, the National Association of Realtors determined that December's sales marked an annual pace of 5.57 million transactions. This was down 3.6 percent from November's downwardly revised figure of 5.78 million sales, but still up 1.1 percent from December 2016.

Although sluggish mid-year sales caused the organization to downgrade its 2017 forecast to 5.44 million existing home sales, a drop of 0.2 percent from the previous year, stronger activity at the end of the year helped push the actual numbers higher. Sales for the year totaled 5.51 million, up 1.1 percent from 2016 to reach the highest level since a figure of 6.48 million in 2006.

"Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multiyear streak of exceptional job growth, which ignited buyer demand," said Yun. "At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace."

Yun has frequently said that housing inventory is not keeping pace with demand, helping to elevate home prices and increase competition for affordable listings. There were 1.48 million existing homes for sale in December, down 11.4 percent from the previous month and 10.3 percent from the previous year. The number of homes available for sale has experienced year-over-year declines for 31 consecutive months.

Median home prices were up for the 70th month in a row. In December, a typical existing home sold for $246,800, up 5.8 percent from December 2016.

"The lack of supply over the past year has been eye-opening and is why, even with strong job creation pushing wages higher, home price gains—at 5.8 percent nationally in 2017—doubled the pace of income growth and were even swifter in several markets," said Yun.

Sales of single-family homes stood at a seasonally adjusted annual rate of 4.96 million, down 2.6 percent from November but up 1 percent from December 2016. The median price for a single-family home in December was $248,100, a year-over-year gain of 5.8 percent.

Condominiums and co-ops had an annual sales rate of 610,000 units, a year-over-year increase of 1.7 percent despite plummeting 11.6 percent from November. The median price for a condo or co-op sold in December was $236,500, up 5.8 percent from the previous year.

The typical existing home sold in December found a buyer after being on the market for 40 days, with 44 percent selling within a month. The average listing period was unchanged from November and 12 days faster than in December 2016.

Mortgage rates continued to edge higher during the month. According to Freddie Mac, the average commitment rate for a 30-year fixed rate mortgage went from 3.92 percent in November to 3.95 percent in December. However, this remained below the 2017 average of 3.99 percent.

First-time buyers made up 32 percent of existing home sales in December. This was unchanged from December 2016 and up from 29 percent in November.

"Rising wages and the expanding economy should lay the foundation for 2018 being the turning point towards an uptick in sales to first-time buyers," said Yun. "However, if inventory conditions fail to improve, higher mortgage rates and prices will eat into affordability and prevent many renters from becoming homeowners."

One in five existing homes purchased in December was bought without financing. This share of all-cash sales was down from 22 percent in November and 21 percent in December 2016. In 2017 as a whole, all-cash purchases accounted for 21 percent of existing home sales – down from 23 percent in 2016.

Cash sales are typically made to individual investors, who accounted for 16 percent of December's transactions. This was up from 14 percent in November, December 2016, and the average for 2016 as a whole.

Five percent of existing home sales in December were distressed properties, up from 4 percent in the previous month but down from 7 percent in the previous year. Four percent of all existing home sales in December were foreclosures, while 1 percent were short sales.

Each of the four geographical regions identified by the National Association of Realtors had a decline in existing home sales from November, though some regions saw annual growth and all had year-over-year boosts to home values. In the Northeast, the annual rate of 740,000 was down 7.5 percent from the previous month and 2.6 percent from the previous year. The median price for an existing home sold in this region was $261,400, up 3 percent from December 2016.

The Midwest's annual rate of 1.33 million sales was down 6.3 percent from November, but still up 1.5 percent from December 2016. The median price for an existing home jumped 7.8 percent to $191,400.

In the South, the annual rate of 2.3 million sales was down 1.7 percent from the previous month but up 3.1 percent from the previous year. The median price for an existing home was $221,200, up 5.8 percent from December 2016.

The annual existing home sales rate of 1.2 million in the West was down 1.6 percent from November and 0.8 percent from December 2016. The median price for an existing home rose 7.3 percent from the previous year to $367,400.