Despite affordability issues and low inventory, 2016 had the best existing-home sales in a decade. At 5.45 million sales, existing-home sales haven't set a pace this fast since 2006, when sales reached 6.48 million; in comparison, sales in 2015 topped out at 5.25 million. According to Lawrence Yun, chief economist for the National Association of Realtors (NAR), "Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market."
In Demand, but Low Supply
Sales in the last month of the year were soft. Existing-home sales fell in December to 5.49 million, dropping 2.8 percent, but sales were still 0.7 percent higher than a year earlier. Low inventory combined with high mortgage rates and home prices took their toll on December's sales. Inventory in the last month of the year fell by 10.8 percent to 1.65 million existing-homes available for sale; at the current sales pace, this is enough inventory to last only 3.6 months. A year ago, supply levels would have lasted 3.9 months. This is the 19th month inventory has fallen year over year. What's more, this is the lowest inventory level recorded since NAR began tracking the housing supply in 1999. Unfortunately, housing construction is still stuck at recessionary levels. Unless more is done to address regulatory issues, new home construction will not be able to address the demand that will arise from current population and economic growth trends. As a result, housing affordability for both buyers and renters will continue to be a concern.
What You Don't Know Can Cost You
Many home buyers are in the dark when it comes to down payments. NAR's Profile of Home Buyers and Sellers recently asked non-owners how much of a down payment was needed to purchase a home. A surprising 87 percent believed more than 10 percent of the purchase price was needed; in reality, down payments for first-time buyers have come in at 6 percent for the past three years. Repeat buyers typically have a down payment of 14 percent. This disconnect between the actual down payment required and the amount buyers think they need may lead to a lack of confidence among first-time buyers. "There are mortgage options available for creditworthy borrowers with manageable levels of debt and smaller down payments," according to William E. Brown, president of NAR. This is good news for the 87 percent of non-homeowners who would one day like to buy their own home. While low inventory and high home prices have made home buying a challenging goal, it's not as far out of reach as first-time buyers believe.
Northeast - Existing-home sales annual rate of 760,000; a decrease of 6.2 percent from November but an increase of 2.7 percent from December 2015.
Midwest - Existing-home sales annual rate of 1.28 million; a decrease of 3.8 percent from November but an increase of 2.4 percent from December 2015.
South - Existing-home sales annual rate of 2.25 million; while unchanged from November, it is an increase of 0.4 percent from December 2015.
West - Existing-home sales annual rate of 1.2 million; a decrease of 4.8 percent from November but an increase of 1.6 percent from December 2015.