The data is in and December marked the end of a record-setting year for housing. Rock-bottom mortgage rates and record-low inventory continue to drive a furious pace of activity for buyers and sellers.
Existing home sales were up in the final month of 2020 with annual sales reaching their highest level since 2006. Sal47es rose 0.7% from November and 22.2% from a year ago for an adjusted annual rate of 6.76 million units.
“Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic,” remarks National Association of REALTORS® (NAR) chief economist Lawrence Yun. “What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market,” Yun continues.
And while pending home sales dipped slightly in December, they still marked the highest ever recorded for the month, for an all-time high pending home sales index of 125.5. Home prices increased in every region with a median home price of $309,800, for a 106th straight month of year-over-year gains. Seller profits also soared with an average gain of $68,843 in 2020, according to a new study from Attom Data Solutions.
The Supply and Demand Situation
The inventory issue remains with unsold units at an all-time low, 1.9-month supply. Compare this to a 3-month supply in December of last year. Homes on the market continue to move quickly with 70% sold in under a month. Homebuilders are catching up with housing starts up 4.5% versus November and 17.3% versus year-ago.
Limited supply and a year-ending, record-low mortgage rate of 2.67% is fueling this fast-moving market. “Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low, but solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth,” notes Freddie Mac chief economist Sam Khater. Khater believes this dynamic will further squeeze potential homebuyers during the critical spring selling season.
And while mortgage applications fell sharply during the holiday period—which is typical—the new year brought a major increase. “Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March 2020, despite most mortgage rates in the survey rising last week. The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and rates higher,” notes Joel Kan, economist with the Mortgage Bankers Association (MBA).
The Year Ahead
Texas and Florida take top honors in the Top 2021 markets for housing, according to Zillow. Senior economist Jeff Tucker believes the pandemic has accelerated trends that were already in place coming into 2020 as homebuyers started to seek sunnier states. “These Sun Belt destinations are migration magnets thanks to relatively affordable, family-sized homes, booming economies and sunny weather,” notes Tucker.
Yun also foresees a sunny year ahead for housing. “Although mortgage rates are projected to increase, they will continue to hover near record lows at around 3%. Moreover, expect economic conditions to improve with additional stimulus forthcoming and vaccine distribution already underway,” he concludes.
The MBA echoes this positive outlook. “The steady demand for home buying throughout most of 2020 should continue in 2021. MBA is forecasting for purchase originations to rise to $1.59 trillion this year—an all-time high,” predicts Kan.
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