A real estate sale sign shows the house as “under contract” in Washington, DC, on November 19, 2020.
Saul Loeb | AFP | Getty Images
Pandemic-driven demand sent home sales in 2020 to their highest level since 2006.
Still, even the most avid buyers face the barriers of today’s real estate market. Record low supply and record high prices limit exceptionally high demand.
Closed sales of existing homes in December rose just 0.7% from November to a seasonally adjusted annualized rate of 6.76 million units, according to the National Association of Realtors. Sales were 22% stronger than in December 2019.
As unexpected as a global pandemic was, so was the reaction of homebuyers. After falling in March and April, sales suddenly began to rise. Total sales at the end of the year ended at 5.64 million units, the highest level since 2006 and much stronger than expected before the pandemic. Buyers were motivated by the desire for larger, suburban homes with dedicated spaces to work and school.
“Home sales could reach 8 million if we had more inventory,” said Lawrence Yun, chief economist at real estate agents. “Mortgage rates are expected to remain very low throughout 2021, although we may have already seen the lowest.”
Strong demand exacerbated the already low inventory of homes for sale earlier this year. At the end of December, the inventory stood at only 1.07 million homes for sale, 23% lower than the previous year. At the current point of sale, this represents a 1.9-month supply. This is the lowest number of homes since real estate agents began tracking this metric in 1982.
Low supply and strong demand continued to increase heat below house prices. The average price of an existing home sold in December was $ 309,800, 12.9% more than in December 2019 and the highest average price recorded in December.
Part of the sharp rise in the average price is that home sales are stronger at the upper end of the market, where there is more supply. Home sales with prices below $ 100,000 fell 15% year-on-year in December, while home sales priced between $ 500,000 and $ 750,000 rose 65% year-on-year. Home sales with more than a million dollars increased 94% from a year ago.
Strong competition for households also has more buyers making cash offers.
First-time buyers accounted for 31% of sales. They typically account for about 40% historically.
It also took them an average of 21 days to sell a home in December.
“It’s unusual, because every year during the holiday season we would see market days increase, but not this year,” Yun said.