Home sales drop in December while prices hit new highs
January 29 - February 4, 2024
By Jay Edwards
The chief economist for the National Association of Realtors (NAR) is optimistic, saying that sales of existing homes, which fell to their lowest level in 30 years, have likely bottomed out. “The latest month’s sales look to be the bottom before inevitably turning higher in the new year,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in the upcoming months.”
The slowdown in sales did not cause prices to drop, however, as the median price reached an all time high of $389,800, the NAR reported.
Three decades ago, in 1994, when existing homes hit that other slow month, the average home price was $130,000. For a little more perspective on time, that was the year the Northridge earthquake rocked the greater Los Angeles area, causing billions of dollars in damage and killing 54 people. Michael Jackson married Lisa Marie Presley and Jacqueline Kennedy Onassis died, as did Richard Nixon and Nicole Brown Simpson and Ronald Goldman.
The first week of the new 1994 year saw interest rates on 30-year home loans at 7.23. By December 30 it had climbed to 9.18. The historical average on a 30-year home loan is 7.74. In January 2024 we are at 6.60, which looks pretty good, comparatively.
“Home buyers should be pleased with the continuing drop in mortgage interest rates,” says Jessica Lautz, deputy chief economist of the National Association of REALTORS®. She notes this week’s average for mortgage rates is the lowest in eight months.
“At the current rate, the typical monthly mortgage payment on a $400,000 home—assuming a 20% down payment—is $2,044,” Lautz says. “That marks a savings of $257 per month compared to when mortgage rates were near 8% last October.
As in all years, 1994 had its share of significant events, which with the relatively short passage of time, today makes them seem incredible. Things like, China getting its first internet connection, or the online bookstore that was started in a rented garage in Seattle by Jeff Bezos and his wife McKenzie. It wasn’t all business. In sports, the Cowboys and Buffalo met for the second straight year in the Super Bowl and the Hogs beat Duke for the National Championship. There was no World Series because of a players strike.
There was another economic event from 1994 that may have been mostly forgotten, especially now, when information rushes by like a stick on a flooded river and it’s hard to remember even last week’s news. What was it? A clue is given a few paragraphs above, in the sentence about mortgage rates rising from 7.23 to 9.18 during the year.
It was first labeled “The great bond massacre,” by Fortune magazine, after the yield on the 30-year treasury bond (known as “the long bond” in investment houses from Little Rock to Wall Street) rose 200 basis points during the year.
It began when the Fed, led at the time by Alan Greenspan, decided to raise the fed funds rate from 3.0 to 3.25 percent. Bond prices had already had a big drop in Japan. It had been five years since the Fed had made a decision to shrink the supply of money and they got tighter as the year progressed, increasing its target by 25 basis points in March and April, 50 points in May and August, and another 75 in November. By its last meeting of the year, the rate resided at 5.5%. The result was a drop in bond valuations, which meant, globally, a loss of around $1.5 trillion, of which $1 trillion was U.S. debt.
“It was Armageddon,” said Paul Griffiths, head of fixed income at Aberdeen Asset Management. “Everyone got crushed heading towards the exit at the same time.”
There must have been some of those same feelings and fears as 2021 rolled into 2022 and beyond. An article in the Wall Street Journal from last October said, “Fixed-income investors have been experiencing calamitous price declines in the bond market since summer 2020. Some 30-year U.S. Treasuries have lost 50 percent of their value, the Bank of America team noted.” But then a strong rally closed out the year and the bond market rallied in a big way, saving fixed income markets from an unprecedented three-year decline. According to Reuters, The U.S. 10-year Treasury yield dropped 46 basis points (bps) last December after falling 53 bps in November. That two-month fall is the biggest since 2008, when the Fed was slashing rates during the global financial crisis.
Of course this is also a positive for mortgage rates and home buyers. But they have a dilemma, which is that many people who might have been inclined to sell, have been and might remain reticent to let go of that very low rate they locked into just a couple of years ago. It is this “lock-in effect” that has been blamed for keeping housing inventory low. And as home prices continue to go up, equity grows. Yun says 85 million homeowners saw gains in housing wealth last month. The average U.S. homeowner with a mortgage has built more than $300,000 in equity since their purchase date, according to CoreLogic’s equity report.
However, “the recent rapid, three-year rise in home prices is unsustainable,” Yun says. “If prices 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.”
Of those homeowners who did decide they were ready to sell, 58 percent of houses sold in December were on the market for less than a month.
Here are more key housing indicators from NAR’s December report:
Days on the market: Properties typically remained on the market for 29 days, up slightly from 26 days a year earlier.
First-time home buyers: First-time home buyers comprised 29% of sales, down from 31% in November.
All-cash sales: All-cash sales comprised 29% of transactions, up slightly from last year’s 28%. Individual investors and second-home buyers make up the biggest bulk of all-cash sales, accounting for 16%, NAR’s data shows.
Regional Breakdown
How existing-home sales fared across the country in December:
Northeast: Sales remained flat compared to November but were down 9.6% compared to a year earlier. Median price: $428,100, up 9.4% from the previous year.
Midwest: Sales fell 4.3% from the prior month, reaching an annual rate of 900,000. Sales are down 10.9% from last year. Median price: $275,600, up 5.9% from December 2022.
South: Sales fell 2.8% from November to an annual rate of 1.72 million. Sales are down 4.4% when compared to the prior year. Median price: $352,100, up 3.8% from one year ago.
West: Sales rose 7.8% from a month ago, reaching an annual rate of 690,000 in December. Sales are down 1.4% from the year prior. Median price: $582,000, up 4.8% from December 2022.
Sources: National Association of Realtors, Reuters and The Wall Street Journal
Photo Caption:
1. Residential construction work in recently annexed Bridgewater Point lakefront subdivision in Morristown, Tennessee, United States, August 2020. (Own work; Appalachian Centrist)
