Existing home sales slipped in December, ending 2023 at the lowest level since 1995, according to the National Association of Realtors (NAR). In 2023, the decline was largely attributed to worsening housing affordability and persistently low supply, exacerbated by higher interest rates. Low inventory, along with strong demand, drove the median home price to a record high of $389,800 in 2023. However, recent declines in mortgage rates and a continued improvement in inventory are expected to fuel more demand in the coming months.
Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops, fell 1.0% to a seasonally adjusted annual rate of 3.78 million in December. On a year-over-year basis, sales were 6.2% lower than a year ago. Over 2023, sales dropped 19% to 4.09 million.
The first-time buyer share fell to 29% in December, down from 31% in November 2023 and December 2022. The December inventory level but was up 4.2% from a year ago.
At the current sales rate, December unsold inventory sits at a 3.2-months’ supply, down from 3.5-months last month but unchanged from a year ago. This inventory level remains very low compared to balanced market conditions (4.5 to 6 months’ supply) and illustrates the long-run need for more home construction.
Homes stayed on the market for an average of 29 days in December, up from 25 days in November 2023 and 26 days in December 2022. In December, 56% of homes sold were on the market in less than a month.
The December all-cash sales share was 29% of transactions, up from 27% in November and 28% a year ago. All-cash buyers are less affected by changes in interest rates.
Existing home sales in December were mixed across the four major regions. Sales in the Midwest and South decreased 4.3% and 2.8% in December, while sales in the West rose 7.8%. Sales in the Northeast were unchanged. However, on a year-over-year basis, all four regions continued to see a decline in sales, ranging from -1.4% in the South to -10.9% in the Midwest.
The Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI stayed at 71.6 in November, the lowest level since the index started in 2001. On a year-over-year basis, pending sales were 5.2% lower than a year ago per the NAR data.
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A notable downturn in existing home sales by the end of 2023 raises concerns about the real estate market. Builders and investors exploring construction loans should approach with caution, considering the impact of reduced sales on housing demand. Assessing market conditions and securing flexible financing options will be crucial for navigating potential challenges in the current landscape.