Home sales peaked at 14 in 2020, bringing prices to record highs

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House prices rose 9% in 2020 from a year earlier, with an average annual price of an existing home rising to $ 296,500, according to a report by the National Association of Realtors . This is the highest price recorded.

Inventory reduction, especially among lower priced homes, was one of the main drivers of this price rise. The year ended with the lowest number of homes available.

Lawrence Yun, chief economist at the NAR, predicts strong activity in the housing market will continue this year.

“While mortgage rates are expected to rise, record lows will continue to hover around 3%,” Yun said. “Expect economic conditions to improve with additional incentives and vaccine distribution is already underway.”

But Yun warns that the current market is not what he would describe as a “healthy market,” in which house prices rise in line with revenue growth and buyers have enough time to make informed decisions about a major purchase. .

“In that sense, it’s not healthy,” Yun said. “Buyers are making decisions in a hurry.”

House prices are also rising much faster than incomes, increasing the division of wealth in housing. Homeowners have seen an average of about $ 24,600 in net worth gains this year, Yun said. Meanwhile, first-time buyers and those at the bottom of the market are finding it’s harder to get there with down payments or make competitive offers.

“Owners are smiling because they see price increases,” Yun said. “They can change until the next home purchase. But the frustration comes from first-time buyers.”

This is because there are fewer homes to buy than ever before and there is more competition for homes to sell.

According to NAR, the inventory is at an all-time low, with 23% fewer homes for sale in December than a year ago. And the number of homes available for purchase has dropped in all price categories except those of $ 750,000 or more.

“More affordable accessibility challenges will emerge if inventory remains so tight and housing price growth continues to accelerate,” said Joel Kan, associate vice president of economic and industrial forecasts for the Association of Mortgage Banks. . “This, in turn, would be especially difficult for first-time home buyers, who account for a third of all home sales.”

Wealthy homeowners get rich, while first-time buyers struggle

The strong pace of sales of existing homes in the latter part of the year continued until December with sales of existing homes (which include single-family homes, townhouses, condominiums and cooperatives), 22% more than a year ago before a season adjusted annual rate of 6.76 million.

Houses at the top of the market continued to sell at a faster rate than those at the bottom of the market. Although home sales with a price less than or equal to $ 100,000 fell 15% in December from the previous year, sales rose 76% in homes sold between $ 750,000 and $ 1 million. dollars. For homes worth a million or more dollars, the number of sales essentially doubled.

This drop at the lower end is due to persistent low inventory, Yun said.

“If we had more inventory at lower prices, we would have home sales even higher than those reported.”

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