Sales of existing homes in 2020 were the highest in 14 years

Demand linked to a pandemic has propelled total home sales in 2020 to the highest level since 2006.

Yet even the most avid home buyers face barriers in today’s real estate market. Record supply and record prices limit the exceptionally high demand.

Closed sales of existing homes in December rose only 0.7% from November to a seasonally adjusted annualized rate of 6.76 million units, according to the National Association of Realtors. Sales were 22% higher than in December 2019.

As unexpected as a global pandemic was, so was the reaction of home buyers. After dropping in March and April, sales suddenly started to climb. Total year-end sales volume stood at 5.64 million units, the highest level since 2006 and much higher than expected before the pandemic. Buyers were motivated by the desire for larger suburban homes with dedicated spaces for work and school.

“Home sales could reach 8 million if we had more inventory,” said Lawrence Yun, chief economist for real estate agents. “Mortgage rates are expected to remain very low throughout 2021, although we may have seen the lows already.”

Strong demand exacerbated what was already a low inventory of homes for sale at the start of the year. At the end of December, inventories stood at just 1.07 million homes for sale, down 23% year-over-year. At the current point of sale, this represents a 1.9 month supply. This is the lowest number of homes since real estate agents started tracking this measure in 1982.

Low supply and strong demand continued to heat up under home prices. The median price of an existing home sold in December was $ 309,800, a 12.9% increase from December 2019 and the highest median price on record in December.

Part of the large increase in the median price is because home sales are stronger in the upper end of the market, where supply is greater. Sales of homes priced under $ 100,000 declined 15% per year in December, while sales of homes priced $ 500,000 to $ 750,000 increased 65% per year. Sales of homes over $ 1 million are up 94% from last year.

The fierce competition for homes also has more buyers making all-cash offers.

First-time buyers represented 31% of sales. They generally represent around 40% historically.

It also only took an average of 21 days to sell a house in December.

“This is unusual, because every year during the holiday season, we would see market days increase, but not this year,” Yun said.