Home sales hit their highest level in 14 years in 2020, pushing prices to record highs

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Home prices rose 9% in 2020 from the previous year, with the annual median price of an existing home climbing to $ 296,500 according to a report by the National Association of Realtors. This is the highest price ever recorded.

Declining inventory, especially among lower priced homes, was one of the main factors behind this price hike. The year ended with the lowest number of homes ever available.

Lawrence Yun, chief economist of NAR, predicts that the strong activity in the housing market will continue this year.

“Although mortgage rates are expected to rise, they will continue to hover near their all-time low at around 3%,” Yun said. “Expect economic conditions to improve with additional stimulus to come and vaccine distribution is already underway.”

But Yun warns that today’s market is not what he would call a “healthy market,” in which home prices rise as income grows and buyers have enough time to make informed decisions about a purchase. important.

“In that sense, it’s unhealthy,” Yun said. “Buyers are rushing decisions.”

House prices are also rising much faster than incomes, which widens the wealth gap in housing. Homeowners have seen an average of around $ 24,600 in equity in their home this year, Yun said. Meanwhile, first-time buyers and those at the lower end of the market are finding it is more difficult to find down payments or to make competitive offers.

“The owners are smiling because they see price increases,” Yun said. “They can trade until their next home purchase. But the frustration comes from first-time buyers.”

This is because there are fewer homes to buy than ever before and more competition for homes to sell.

Inventories are at an all-time low, according to NAR, with 23% fewer homes for sale in December than a year ago. And the number of homes available to buy is down in all price categories except those $ 750,000 and over.

“More acute affordability issues will emerge if inventories remain this tight and house price growth continues to accelerate,” said Joel Kan, associate vice president of economic and industrial forecasting for the Mortgage Bankers Association. “This, in turn, would be particularly difficult for first-time home buyers, who account for one-third of all home sales.”

Wealthy owners get richer, while first-time buyers struggle

The strong pace of existing home sales seen over the latter part of the year continued in December with existing home sales – which include single-family homes, townhouses, condominiums and co-ops – in 22% increase over the previous year. adjusted annual rate of 6.76 million.

Homes at the top of the market continued to sell at a faster rate than those at the bottom of the market. While sales of homes priced at $ 100,000 and under fell 15% in December from the previous year, sales rose 76% for homes sold between $ 750,000 and $ 1 million. For homes of $ 1 million and over, the number of sales has essentially doubled.

This drop at the lower end is due to persistent low inventory, Yun said.

“If we had more inventory at the lower prices, we would have even bigger home sales than reported.”

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