The Mortgage Corner
Existing-home sales rose 2.2% in December to a seasonally adjusted annual rate of 4.24 million, the strongest pace since February 2024 (4.38 million).
The huge jump in existing-home sales on still very high mortgage rates illustrates the enormous pent-up demand for rental or owner-occupied housing, I said last month. Demand is now exceeding the existing home inventory, just a 3.8 months’ supply vs. the 8-month supply of new homes for sale that is only partially filling the housing supply shortage. Realtors believe the strong demand will continue, in spite of the high rates.
"Home sales momentum is building," said NAR Chief Economist Lawrence Yun. "More buyers have entered the market as the economy continues to add jobs, housing inventory grows compared to a year ago, and consumers get used to a new normal of mortgage rates between 6% and 7%."
It remains to be seen how long consumers will tolerate such high mortgage rates. The 2001 Dot-com recession was the last time conforming 30-year fixed rate mortgages were above 7 percent, when existing-home sales then began the climb to a 7 million annual rate, before the long decline in interest rates. It all led to the 2007 housing bubble and Great Recession. If such demand continues, could we see another era of irrational exuberance as happened then? That’s grist for another column!
Existing-home inventory registered at the end of November was 1.33 million units, down 2.9% from October but up 17.7% from one year ago (1.13 million). Unsold inventory sits at a 3.8-month supply at the current sales pace, down from 4.2 months in October but up from 3.5 months in November 2023.
This is why building more new homes is so important. It is why builders have built up an 8-month inventory. And it is why sales of newly single-family houses in December 2024 were also so high, at a seasonally adjusted annual rate of 698,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development, above the December 2023 estimate of 654,000.
Even pending home sales jumped, another sign of an incipient housing recovery, Pending sales help to predict closings 30 to 60 days out. Pending home sales gained 2.2% in November – the fourth consecutive month of increases and the highest level since February 2023 – according to the National Association of REALTORS®.
“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” said NAR Chief Economist Lawrence Yun. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially. Furthermore, buyers are in a better position to negotiate as the market shifts away from a seller’s market.”
Builders blame “unnecessary regulations” for much of the housing shortage. However, most of the ‘unnecessary regulations’ are at the state and local levels, such as restrictive zoning, state environmental laws, and even banking regulations.
It’s difficult to see how the outcome of national elections can affect such local changes. California is one such state that has taken on the NIMBYs (Not in my backyard) crowd as well as putting aside loan subsidies for affordable housing. That’s where the changes need to be to make up for the current housing shortage.
It’s hard for me to see that we will have another 7-million-unit sales year as happened during the housing bubble, however, no matter the mortgage rates. It was a different era, for those that can remember, since we have an ongoing labor shortage and higher construction costs (tariffs?) today.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
No comments:
Post a Comment