U.S. home sales surged to a 15-year high in 2021, as ultralow interest rates and remote work fueled an extremely competitive housing market.
Home prices grew at a record pace across the country last year as buyers vied for a limited number of homes for sale. Homes sold faster than ever, with many sellers receiving multiple offers above the list price. Existing-home sales rose 8.5% from a year earlier to 6.12 million, the National Association of Realtors said Thursday.
Housing economists expect the market frenzy to subside in 2022, as interest rates are projected to continue rising. But many still anticipate a busy first half of the year, as demand remains robust. In the near term, buyers could rush to buy homes before borrowing costs go up further, they say.
Home sales slowed at the end of the year as the supply of homes for sale fell to a record low. Existing-home sales declined 4.6% in December from the prior month to a seasonally adjusted annual rate of 6.18 million, NAR said. December sales fell 7.1% from a year earlier.
The median existing-home price in 2021 rose to a record $346,900, up 16.9% from 2020, NAR said.
Rising mortgage rates are likely to weigh on home sales this year, said Lawrence Yun, NAR’s chief economist. But demand remains strong so far, he said.
“Buyers are there, but the lack of inventory is hindering some of the sales activity,” Mr. Yun said.
Economists surveyed by The Wall Street Journal expected a 0.3% monthly increase in sales of previously owned homes, which make up most of the housing market.Low mortgage rates increased housing demand from all types of buyers last year, including first-time homeowners, luxury vacation-home buyers and investors. Many households saved more money during the pandemic and benefited from a rising stock market.
Employees who could work remotely some or all of the time were willing to live farther from their offices. A large generation of millennials is also entering their early and mid-30s, which are common home-buying years.
Matt and Alison Mirandi started house hunting in January 2021 in New Jersey. They were living in a one-bedroom rental apartment with their son, who was born in 2020.
They struggled to find houses that met their needs, and the competition was fierce.
“There’s such a dearth of starter homes, and the run-up on those prices is so obscene from what it was a couple years ago,” Mr. Mirandi said. “We were so dejected.”
They bought a four-bedroom house in Ramsey in December for $750,000 and expect to move in next month.
The number of homes for sale remained unusually low all year, as many homeowners have been reluctant to sell during such a competitive market for buyers.
There were 910,000 homes for sale at the end of December, down 18% from November and down 14.2% from December 2020, NAR said. This is the lowest level on record since NAR began tracking total existing-home inventory in 1999. At the current sales pace, there was a 1.8-month supply of homes on the market at the end of December, also a record low.
“I think this first quarter is going to be exceptionally frenzied in the housing market,” said Jeff Tucker, senior economist at Zillow Group Inc. The current inventory level is “leaving very few options on the shelf for buyers to choose from,” he said. “And I think a lot of buyers are feeling a sense of urgency as they watch mortgage rates rise.
”Mortgage-interest rates have risen quickly in recent weeks to the highest level since March 2020. The average rate on a 30-year fixed-rate mortgage was 3.56% as of Thursday, according to mortgage finance giant Freddie Mac.
Shoppers who were frustrated by the market last year could return in 2022, say real-estate agents.
“There were a lot of people that renewed leases over the summer because they weren’t finding anything and getting really discouraged,” said Gene Montemore of Launch Real Estate in Scottsdale, Ariz. “I think the spring is going to get busy again.”
The number of homes currently under construction is at a multiyear high, but builders have been delayed by labor shortages and supply-chain issues. Housing starts, a measure of U.S. home-building, rose 1.4% in December from November, the Commerce Department said this week. Residential permits, which can be a bellwether for future home construction, rose 9.1%.
As more homes are completed this year, that could help ease the supply shortage and make existing homeowners more willing to sell. On the other hand, homeowners who refinanced at ultralow rates might be reluctant to move if mortgage rates rise.
“It just doesn’t make sense for everybody to sell right now, even though home prices are so high,” said Daryl Fairweather, chief economist at Redfin Corp.
With so few homes for sale, the market remains fast-paced. The typical home sold in December was on the market for 19 days, up from 18 days the prior month, NAR said.
The market is especially competitive at lower price points, where buyers with limited cash can be outbid by investors or cash buyers. About 23% of December existing-home sales were purchased in cash, up from 19% a year earlier, NAR said.
The share of first-time buyers in the market fell to 30%, from 31% a year earlier.
Existing-home sales fell the most month-over-month in the West, down 6.8%, and in the South, down 6.3%.
News Corp, owner of the Journal, also operates Realtor.com under license from NAR.