Sales of existing homes have fallen for an 11th straight month, and sales in December were the worst for the month since 2008, the year that the country suffered a devastating financial crisis following the housing crash.
The hit to the housing market reflects the Federal Reserve’s efforts to lower inflation by raising interest rates, which has jacked up mortgage rates and put home buying out of reach for many.
Existing-home sales plunged by 1.5% in December to a seasonally adjusted annual rate of 4.02 million, according to a report by the National Association of Realtors released Friday. Sales were down 34% from a year ago. It was also the worst December since the financial crisis, and sales were only 7.2% above the record low for December in 2008.
While the decline did mark another consecutive month of flagging sales, it was less profound than the negative 5.4% that was expected by forecasters.
MAYORS ACROSS THE US STRUGGLING TO MEET AFFORDABLE HOUSING DEMAND AND COMBAT HOMELESSNESS
“December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” said NAR chief economist Lawrence Yun. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”
As of Friday, the average rate on a 30-year fixed-rate mortgage is at 6.15%, according to Freddie Mac, which is much higher than a year before, but it’s off of its peak of more than 7% that was registered in November.
Despite the fast-falling number of sales, prices of homes are still high, although price growth is slowing. The median price of an existing home in December was $366,900, a growth of 2.3% from the year before.
“Home prices nationwide are still positive, though mildly,” Yun added. “Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”
The numbers are a result of the Fed raising interest rates in order to tamp down inflation. When the Fed raises interest rates, it causes mortgage rates also to rise and make housing more unaffordable and buying less attractive.
The dynamic is also reflected in housing starts, which measure the annualized change in the number of new residential buildings that began construction.
Housing starts fell 1.4% last month to an annual rate of 1.38 million units, according to recently released data from the Commerce Department.
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The languishing housing market is leading many economists to believe that a full-blown recession, brought on by the Fed’s aggressive tightening cycle, is possible in the coming year or so.
While raising interest rates drives down inflation, an unfortunate side effect of doing so is that the economy slows. Given the pace of the past rate hikes, many economists see a recession as very likely as the economy catches up with the rate increases.
