Author: Lucia Mutikani
WASHINGTON (Reuters) – U.S. existing home sales rose to a 10-month high in December, but further gains are likely to be limited by higher mortgage rates and home prices, which are keeping many potential buyers away.
Home sales rose 2.2% last month to a seasonally adjusted annual rate of 4.24 million units, the highest level since February, the National Association of Realtors said Friday.
Economists polled by Reuters had forecast home resales to rise to a rate of 4.19 million units. Sales rose 9.3% year-on-year, the biggest increase since June 2021.
A total of 4.06 million previously owned homes were sold last year, the lowest number since 1995.
“Home sales in the final months of the year showed a solid recovery despite elevated mortgage rates,” said Lawrence Yun, NAR’s chief economist. “Increased jobs and wages, along with increasing inventories, are positively impacting the market.”
Mortgage Finance Agency Survey Fannie Mae (OTC:) on Wednesday predicted weak existing home sales in the first half of the year, noting that “new homes are now priced competitively with existing homes and are far more affordable.” The popular 30-year fixed-rate mortgage is forecast to average 6.7% in the first quarter and ease to 6.6% in the second quarter.
Mortgage rates rose late last year in tandem with U.S. Treasury yields, which have jumped on economic resilience, particularly in the labor market, and investor concerns that President Donald Trump’s plans for tax cuts, sweeping tariffs and mass deportations could fuel inflation.
The Federal Reserve has trimmed its projected interest rate cuts for this year to just two of the four it estimated in September, when it launched its policy easing cycle. The average rate on a 30-year fixed-rate mortgage is just under 7%.
Housing inventory fell 13.5% to 1.15 million units last month. The offer increased by 16.2% compared to the year before. The median price of an existing home rose 6.0% year over year to $404,400 in December and will reach a record high of $407,500 in 2024.
At the December sales pace, it would take 3.3 months to exhaust the current inventory of existing homes, up from 3.1 months a year ago. A four to seven month supply is considered a healthy balance between supply and demand.
Properties typically stayed on the market for 35 days in December, compared to 29 days a year ago. First-time buyers accounted for 31% of sales, up from 29% a year ago. They made a record low 24% in 2024. Economists and realtors say a share of 40% is needed for a strong real estate market.
Cash sales accounted for 28% of transactions last month, down from 29% a year ago. Distressed sales, including foreclosures, represented just 2% of transactions, unchanged from last year.
