The housing market had its worst year in almost three decades in December as sales of homes owned by Americans fell.

According to data from the National Association of Realtors released Friday (19 Jan), contract closings fell by 1 percent compared to a month ago, to 3,78 million annually. Sales for 2023 will be at their lowest level since 1995.

Last year, the housing market – which is one of the most sensitive areas of the economy to interest rates – was in turmoil as the Federal Reserve increased borrowing costs at the highest level seen since the early 2000s.

Since then, policymakers have shifted their focus to lowering rates. Mortgage rates are now lower than they were in October when they reached a high of around 8 percent. Many homeowners hesitate to sell their homes and move before rates drop further.

Sales in the last month seem to be at a low point before they rise again in the coming year. Mortgage rates have dropped significantly compared to two months ago. More inventory will be available in the coming months.

Chuan Park by MCC Land and Kingsford

Data this week revealed that mortgage applications for home purchase rose to their highest level since last July. The sentiment of homebuilders has also improved, which will help to boost the inventory of new construction.

The number of homes that were previously owned and for sale last month dropped to 1 million, which is the lowest level since March. The current pace of sales would require 3.2 months to sell all properties currently on the market. Any supply below five months is considered tight by realtors.

This lack of inventory helps to keep prices high. In December, the median selling price increased to US$382,600 from US$382,600 a year earlier. This increase was reflected in all four regional increases. Prices reached a record high of US$389 800 in 2023.

About 56% of homes were sold after less than one month on the market. The properties remained on sale for 29 days compared to 25 days in November.

According to new projections citing the high price of homes in relation to income, it will take years for the resale sector to fully recover to its pre-pandemic level.

The majority of home sales are made by existing homes and are based upon contract closures. Next week, data on new home sales will be released, which reflects contract signings.