Inadequate housing inventory levels and rising home prices caused existing-home sales to drop in December compared to the month before, according to a press release from the National Association of Realtors.
Lawrence Yun, the NAR's chief economist, explained that home prices jumped in November and took many would-be buyers by surprise. Compared to a year ago, home prices in December were 4% higher, reaching a median of $232,200. This represents close to five years of consecutive annual gains.
As prices went up, inventory went down, reaching the lowest level the NAR has seen since 1999, when it began tracking availability of all housing types. There were 1.65 million existing homes on the market at the end of December, 10.8% fewer than one month earlier.
Another factor could have been rising conventional mortgage rates. The average 30-year fixed-rate mortgage came to 4.32% during the final full week of December, according to Freddie Mac. Comparatively, this same mortgage landed at an average of 4.03% during the final full week of November.
The Wall Street Journal pointed out that rising rates could have inspired some buyers to close sooner rather than later to take advantage of November's relatively low prices.
"As rates continue to rise, we'll see some of the bigger impacts in very expensive metros," Svenja Gudell, Zillow's chief economist, told The Journal.
Though December's numbers were relatively low, 2016 closed on a positive note, recording the highest number of home sales since 2006, according to the NAR. Total existing-home sales for the year reached 5.45 million, compared to the 5.25 million sold in 2015. In 2006, existing-home sales reached 6.48 million.
"Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market," Yun commented.
The unemployment rate never went above 5% for all of 2016, according to the U.S. Bureau of Labor Statistics' Employment Situation report. For the entire year, job growth reached 2.2 million, compared to the 2.7 million created in 2015.
Though these numbers are positive, many economists predict that 2017 will see continued improvement, according to The Atlantic. However, the coming year won't be without its challenges.
"It is possible that the labor-force participation rate among prime-age workers might improve just a bit more," Harry Holzer, the former chief economist of the U.S. Department of Labor, explained to The Atlantic. "But the improvements will be limited for two reasons: First, we are approaching the limit in labor supply of workers who are available and who have the skills needed for existing openings; and second, growth in demand will be limited as interest rates rise."
Continued job growth is important for sustaining a positive real estate landscape in 2017, Yun said. It will be particularly important to first-time buyers entering the market.
"Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it's not getting any easier to be a first-time buyer," he said. "It'll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market."
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