Existing-home sales in the United States posted a modest increase last month, breaking a streak of five consecutive monthly declines and hinting at a more favorable outlook for the real estate market in the coming year. According to a report from the National Association of REALTORS® (NAR), completed transactions for single-family homes, townhomes, condos, and co-ops rose by 0.8% in November.
NAR Chief Economist Lawrence Yun anticipates further growth in the upcoming months, attributing the positive trend to a decline in borrowing costs. Mortgage rates, which averaged 6.95% last week, have eased from their recent peak of nearly 8% earlier this fall. Despite this improvement, November's existing-home sales were still down by 7.3% compared to the same month the previous year.
One factor contributing to the challenges in the housing market is the continuous rise in home prices, driven by persistently low inventory. In November, prices surged by 4% year over year, reaching a median of $387,600. Lawrence Yun notes, "Only a dramatic rise in supply will dampen price appreciation."
The scarcity of housing inventory remains a significant hurdle for homebuyers, with many homeowners who secured low mortgage rates in previous years reluctant to sell. Although total inventory saw a marginal increase of 0.9% year over year, it was down by 1.7% month over month in November.
To address the shortage, homebuilders are increasing construction efforts, with single-family home construction experiencing an 18% surge in November compared to the previous month and a notable 42% increase compared to the same period the previous year. The National Association of Home Builders (NAHB) is optimistic about a 4% rise in single-family starts in 2024, anticipating lower mortgage rates and reduced inflation.
Despite higher home prices and mortgage rates, buyers remain resilient, engaging in bidding wars for limited inventory. NAR reports that 62% of properties sold in November were on the market for less than a month, with properties typically selling within 25 days. First-time buyers are reemerging, constituting 31% of existing-home sales in November, up from 28% the previous year.
Cash sales are also on the rise, with 27% of transactions in November being cash sales. This trend is attributed to buyers leveraging proceeds from previous home sales and bypassing higher mortgage rates. Individual investors and second-home buyers lead in cash transactions, comprising 18% in November, up from 14% a year earlier.
Regional variations persist in the real estate market, with the South and Midwest experiencing strong home sales. NAR identifies several markets in these regions as having the most pent-up homebuyer demand heading into 2024. Austin and Dallas–Fort Worth, Texas; Dayton, Ohio; and Durham–Chapel Hill, N.C., are among the top 10 markets to watch in the coming year.
"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."
As the real estate market adapts to changing conditions, the coming year holds promise for both buyers and sellers, with expectations of increased supply and more favorable mortgage rates.
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