Existing-home sales posted a slight gain last month, breaking a streak of five consecutive monthly declines and foreshadowing what is expected to be a more favorable real estate market in 2024.
The National Association of REALTORS® reported Wednesday that existing-home sales, which are completed transactions for single-family homes, townhomes, condos and co-ops, rose 0.8% in November. That figure is likely to grow in the coming months as borrowing costs fall, says NAR Chief Economist Lawrence Yun. Mortgage rates averaged 6.95% last week after reaching nearly 8% earlier this fall.
Still, November existing-home sales were down 7.3% from a year earlier, NAR reports. Home prices, which are still rising due to low inventory, are pressing on buyers’ budgets. Prices were up 4% year over year in November, reaching a median of $387,600. “Only a dramatic rise in supply will dampen price appreciation,” Yun says.
More Supply Could Be Coming
Home buyers continue to face limited options on the market, and many homeowners who locked in ultra-low mortgage rates in recent years remain reluctant to sell. That’s helping to keep housing inventory at historical lows. Total inventory in November was down 1.7% month over month but was up 0.9% year over year.
With existing inventory so low, homebuilders are ramping up construction to woo more buyers. Single-family home construction surged 18% in November compared to the prior month and was up 42% compared to a year earlier, the Commerce Department reported this week. New-home sales have risen this year despite higher mortgage rates this fall. Builders have been offering more incentives, such as buying down interest rates or offering co-op commissions to buyer’s agents, Yun says.
“Lower interest rates and a lack of resale inventory helped to provide a strong boost for new-home construction in November,” says Alicia Huey, chairperson of the National Association of Home Builders. “And while these higher starts are consistent with our latest builder survey, which shows a rise in builder sentiment and future sales expectations, home builders continue to contend with elevated construction and regulatory costs.”
Still, home builders are forecasting a 4% increase in single-family starts in 2024, banking on expectations that mortgage rates will fall lower and inflation will drop in the new year, says Robert Dietz, the NAHB’s chief economist.
“Even more homebuilding will be needed with the housing shortage persisting in most markets,” Yun says. “Another 30% rise in home construction can easily be absorbed in the marketplace, especially in light of the plunge in mortgage rates in recent weeks.”
Resilient Buyers Are Standing Ready
Despite higher home prices and mortgage rates, bidding wars continue as consumers compete for limited inventory on the market. Homes are selling fast: 62% of properties sold in November were on the market for less than a month, NAR reports. Properties typically remained on the market for 25 days in November.
First-time buyers are reemerging, comprising 31% of existing-home sales in November, up from 28% a year ago, according to NAR’s data. Also, more consumers are buying a home with cash, leveraging the proceeds from a previous home sale and bypassing higher mortgage rates altogether. Twenty-seven percent of transactions in November were cash sales. Individual investors and second-home buyers tend to make up the biggest bulk of cash sales, comprising 18% in November, up from 14% a year earlier, according to NAR’s data.
Home sales remain strong, particularly in the South and Midwest. NAR has identified several markets in the South and Midwest as having the most pent-up homebuyer demand heading into 2024. Leading its list of top 10 markets to watch in 2024 were the metro areas of Austin and Dallas–Fort Worth, Texas; Dayton, Ohio; and Durham–Chapel Hill, N.C.
