The numbers: Sales of previously-owned homes jumped 3.6% in December, in spite of the fact that many people are struggling to find homes to because of a low supply of properties for sale.
Existing-home sales occurred at a seasonally-adjusted annual pace of 5.54 million, the National Association of Realtors reported Wednesday.
The pace of all home sales — including existing and new homes — was 10.8% higher than a year earlier.
Notably, the inventory of homes for sale dropped yet again, plummeting to a 3.0-month supply from a 3.7-month supply in November. That represents the lowest supply of homes since the National Association of Realtors began tracking this data in 1999. The general rule of thumb is that a 6-month supply is indicative of a balanced market.
What happened: The median sales price for existing homes in November was $274,500, which was 7.8% higher than a year ago. Home prices have now increased on an annual basis for 94 consecutive months, the National Association of Realtors reported.
On a full year basis, total existing-home sales ended 2019 at 5.34 million, roughly the same as 2018. A 2.2% uptick in sales in the South mitigated a 1.8% decline in the West and a 1.6% drop in the Midwest. (Sales volume in the Northeast remained unchanged year-over-year.)
Big picture: The main question facing the housing market right now is whether inventory will be able to meet demand. The answer to that question will determine the fate of existing-home sales heading into 2020.
“Unlike new home sales which, helped along by lower mortgage interest rates, strengthened over the course of 2019 and ended the year on a strong upward trajectory, existing home sales ambled about aimlessly in 2019, with extraordinarily lean inventories acting as a material drag on sales,” Richard F. Moody, chief economist at Regions Financial Corp., wrote in a research note earlier this week.
In the wake of the recession, many homes were purchased by investors and converted into rental units, which has suppressed inventory significantly. It remains unlikely that these landlords will choose to put their homes up for sale, given the strong rental price appreciation occurring across much of the country in recent months.
For home buyers, relief will likely come from the new-home market. But builders are falling well short of constructing enough properties to meet that demand. The pace of home-building is well short of what’s needed. Between 2012 and 2019, 5.92 million single-family homes were constructed, but 9.76 million new households formed, according to research from Realtor.com. That created a housing gap of 3.84 million new homes, researchers found.
What they’re saying: “Given the clear upward trend in mortgage demand in the fall, it would be reasonable to expect sales to be trending higher, but lack of inventory might be holding back transactions volumes in some markets,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“Across the country there are fewer and fewer places with lower-priced homes combined with good job prospects, and that is a fundamental reason why Americans are moving at the lowest rates in our history. Even low mortgage rates cannot make homes affordable for millions,” said Robert Frick, corporate economist for Navy Federal Credit Union.
Market reaction: The Dow Jones Industrial Average DJIA, +0.03% and the S&P 500 SPX, +0.21% were both slightly higher in morning trading following the housing data release, while the 10-year Treasury yield TMUBMUSD10Y, +0.00% was down.