U.S. existing home sales slowed for the 11th consecutive month in December as higher mortgage rates, surging inflation and steep home prices sapped consumer demand from the housing market.
Sales of previously owned homes tumbled 1.5% in December from the prior month to an annual rate of 4.02 million units, according to new data released Friday by the National Association of Realtors (NAR). On an annual basis, existing home sales are down 34% when compared with December 2021.
It is the slowest pace since November 2010, when the U.S. was still in the throes of the housing crisis triggered by subprime mortgage defaults.
"December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates," NAR chief economist Lawrence Yun said in a statement. "However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year."
There were about 970,000 homes for sale at the end of December, according to the report, a decline of 13.4% from November but up about 10.2% from one year ago. Homes sold on average in just 26 days, up from 24 days in November and 19 days one year ago. Before the pandemic, homes typically sat on the market for about a month before being sold.
At the current pace of sales, it would take roughly 2.9 months to exhaust the inventory of existing homes. Experts view a pace of six to seven months as a healthy level.
The interest rate-sensitive housing market has borne the brunt of the Federal Reserve's aggressive campaign to tighten policy and slow the economy.
Policymakers already lifted the benchmark federal funds rate seven consecutive times in 2022 and have indicated they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.
Still, mortgage rates are continuing to fall from a peak of 7.08% notched in November. The average rate for a 30-year fixed mortgage fell to 6.15% this week, according to data from mortgage lender Freddie Mac. However, that remains significantly higher than just one year ago, when rates hovered around 3.56%.
However, even with higher interest rates putting homeownership out of reach for millions of Americans, prices are still steeper than just one year ago. The median price of an existing home sold in December was $372,700, a 2% increase from the same time a year ago. This marks the 130th consecutive month of year-over-year home price increases, the longest-running streak on record.
Prices, however, have moderated slightly after peaking at a high of $413,800 in June.
"The housing market is reeling from years of under-building, economic uncertainty and high interest rates," said Jeffrey Roach, the chief economist at LPL Financial, adding: "Given the confluence of these factors, housing affordability is the lowest since the mid-1980s."