New and existing home sales in 2020 reached their highest levels since 2006; housing was the only sector to fully recover and then some from the current crisis. The push to work from home and record-low mortgage rates (aided by the Federal Reserve) prompted people to refinance and upgrade existing homes, buy second homes to escape the cramped reality of working from home or buy their first homes. Even with those gains, it is notable that total, single-family home sales are still down more than 20% from the highs they hit at the peak of the housing bubble in 2005.
The strongest gains in home sales occurred over the summer. Existing home sales actually picked up in the fall but those sales are not counted until the contract closes, which is typically a month to two months after the initial bid. New home sales are counted when buyers place their initial offers, which makes them a coincident indicator of the overall market; new home sales peaked over the summer.
Tight supplies accounted for much of the slowdown in bids for existing and new homes as we moved into the fourth quarter. Supplies of existing homes for sale fell to 1.9 months in December, an historic low. That is about three times less than what is needed to clear the market, or meet demand. New home inventories ended the year in somewhat better shape, with inventories at a 4.3 months supply, but are still down significantly from a year ago. Builders were busy over the summer and into the fall. (Understatement.)
New, single-family home sales rose 1.6% to an 842,000-unit rate in December. That marks a slight improvement from November but is still off the high of 979,000 in July. Gains were uneven last month with a sharp gain in the Midwest offsetting a small setback in the South. The South is the largest and most important market for new home construction and sales.
Prices for new homes hit a record high in December. The median sales price for a new, single-family home was $355,900, up more than 8% from a year ago. Again, that pales when compared to the appreciation we saw during the height of the housing bubble, which came close to 20% in mid-2005.
Existing home sales rose 0.7% in December and ended the year at 6.76 million units. That is down only slightly from the peak in September; remember, existing sales lag new home sales. Single-family sales drove overall gains, although gains in condos and townhouses picked up at year-end.
Tight inventories coupled with strong demand pushed up prices at an even faster rate than we saw in the new home market. The median price for an existing home crossed the $300,000 threshold for the first time in July and has stayed above it since then. Median home prices jumped nearly 13% from a year ago in December, more than that mid-year and ending 2020 up 9.5% on average. That is still less than the double-digit, annual jump in 2005.
Gains in sales of existing homes for the year were strongest in the South and West. Home buyers have been fleeing some of the highest cost markets on the coasts for less expensive markets inland or in Florida. Investors are also entering the market, which is exacerbating the jump in prices for existing homes. Supply remains the number one constraint, although realtors are beginning to worry about affordability as well.
Home owners are more reluctant to put their homes on the market than they were in the past, despite fevered demand. The average time spent living in a home has been rising since 2005 and hit 13 years in 2020, according to Redfin. That means that one in four owners in the U.S. has lived in his or her home for over 20 years. Many baby boomers are aging in place. Exceptionally low mortgage rates have enticed owners to refinance their mortgages, pocket the savings and stay in their homes longer; renovations are soaring.
Mortgage rates climbed slightly as the new year began; according to Freddie Mac, the 30-year rate hit 2.73% this week, up from a low of 2.65% at the beginning of the month. Mortgage rates still sit almost one percentage point lower compared to a year ago. The support the Federal Reserve has provided in the form of mortgage-backed security purchases has helped keep rates low.
The housing market stands out as an outlier in an economy that technically moved out of recession territory during the fourth quarter. We have benefitted from the combination of low rates and the demand unleashed by working from home. Look for home buying and building to remain strong in 2021; people are even buying sight unseen, using virtual technology tours.
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