The numbers: Existing-home sales fell after five straight months of increases in November, as buyers were met with a record-low number of homes for sale.
Total existing-home sales dipped 2.5% from October to a seasonally-adjusted annual rate of 6.69 million, the National Association of Realtors reported Tuesday. October’s sales figure had been the highest in 15 years.
Compared with a year ago, home sales were up nationally nearly 26%. Economists polled by MarketWatch had projected existing-home sales to dip to a median rate of 6.64 million.
What happened: The inventory of homes for sale fell nearly 10% from October to a record-low of 1.28 million units, which equates to a 2.3-month supply. A six-month supply of homes is generally considered to be indicative of a balanced market.
Falling inventory has created more competition for homes, pushing prices upwards. The median existing-home price was $310,800 in November, up 14.6% from a year ago.
“Housing affordability, which had greatly benefitted from falling mortgage rates, are now being challenged due to record-high home prices,” Lawrence Yun, chief economist at the National Association of Realtors, said in the report. “That could place strain on some potential consumers, particularly first-time buyers.”
Regionally, home sales dropped on a monthly basis across every region except the West, where they were unchanged from the month before. However, when compared with a year ago, sales volumes and prices were up across the board.
The big picture: The resilience of the country’s housing market in the face of the COVID-19 pandemic continues to be one of the biggest surprises of this year. “The big story of 2020 in the housing market has been the fact that not even a pandemic could dampen Americans’ drive for a new space to call home,” said Bill Banfield, executive vice president of capital markets at Rocket Mortgage.
Low mortgage rates and a desire for more space fueled massive demand among home buyers. But for a variety of reasons, sellers have not been similarly motivated. Some might have lingering fears about the state of their finances, while others might be worried about the health concerns associated with moving during a pandemic.
Either way, the number of properties on the market has been chipped away, month after month. Now, with only dregs left, buyers’ battles to purchase homes are driving prices skyward. Low interest rates can offset these price increases for now. But if mortgage rates should rise — say because of rapid uptake of the vaccine for the coronavirus and positive economic developments in the new year — buyers may have a hard time affording such a big purchase.
What they’re saying: “The extreme shortage of inventory means we expect further evidence of rapid price increases,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note prior to the existing-home sales report’s release. “Such rapid increases in home prices reduce the implied real mortgage rate for potential borrowers, thereby pulling in new buyers. Fear of losing out on the property ladder as prices rise can also be a powerful motivating force.”
“Sales in November would have been higher but for the low inventory of homes on the market; almost three-quarters of homes were sold after being on the market less than one month. The imbalance between high demand and low supply explains why the year-over-year median home price has gone up by double digits four months in a row,” said Holden Lewis, mortgage and housing expert at NerdWallet.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were both down in Tuesday morning trading.