The real estate market displayed a modest improvement last month, putting an end to a five-month consecutive decline and signaling a more favorable outlook for 2024.
According to the National Association of REALTORS® (NAR), existing-home sales, encompassing transactions for single-family homes, townhomes, condos, and co-ops, increased by 0.8% in November. Anticipating further growth in the upcoming months, NAR Chief Economist Lawrence Yun attributes this positive trend to a decrease in borrowing costs, with mortgage rates averaging 6.95% last week after peaking at nearly 8% earlier in the fall.
Despite this improvement, November's existing-home sales were 7.3% lower compared to the same period the previous year. The persistent rise in home prices, fueled by limited inventory, continues to impact buyers' budgets, with prices escalating by 4% year over year in November, reaching a median of $387,600. Yun asserts that only a substantial increase in supply can mitigate further price appreciation.
The scarcity of options on the market persists as many homeowners, who secured ultra-low mortgage rates in recent years, are hesitant to sell. Consequently, housing inventory remains at historically low levels, experiencing a 1.7% month-over-month decrease in November but a 0.9% year-over-year increase.
To address the low inventory, homebuilders are intensifying construction efforts to attract more buyers. Single-family home construction saw an 18% surge in November compared to the previous month and a notable 42% increase from the previous year, according to the Commerce Department. Despite higher mortgage rates, new-home sales have risen, as builders offer incentives like reduced interest rates or co-op commissions to buyer's agents.
Alicia Huey, chairperson of the National Association of Home Builders, notes that lower interest rates and a shortage of resale inventory have bolstered new-home construction in November. However, she acknowledges that builders still grapple with elevated construction and regulatory costs.
Looking ahead, home builders are optimistic about a 4% increase in single-family starts in 2024, banking on expectations of lower mortgage rates and decreased inflation in the new year, according to Robert Dietz, the NAHB's chief economist. Yun emphasizes that more home construction is needed to address the persistent housing shortage.
Despite higher prices and mortgage rates, bidding wars persist as buyers compete for limited inventory, with 62% of properties selling in November on the market for less than a month. First-time buyers are making a comeback, comprising 31% of existing-home sales in November, up from 28% the previous year.
Moreover, consumers are increasingly opting for cash transactions, leveraging proceeds from previous home sales and bypassing higher mortgage rates. Cash sales accounted for 27% of transactions in November, with individual investors and second-home buyers contributing to the majority.
Strong home sales continue, particularly in the South and Midwest. NAR has identified several markets in these regions with significant pent-up homebuyer demand for 2024, including Austin and Dallas–Fort Worth, Texas; Dayton, Ohio; and Durham–Chapel Hill, N.C.
NAR's latest housing report breaks down existing-home sales across regions in November:
- Northeast: Sales declined by 2.1% compared to October, reaching an annual rate of 470,000. Home sales were down 13% compared to a year earlier, with a median price of $428,600, up 4.8% from the prior year.
- Midwest: Sales increased by 1.1% from the previous month, reaching an annual rate of 940,000. Existing-home sales were down 8.7% from one year ago, with a median price of $280,800, up 4.9% from November 2022.
- South: Sales rose by 4.7% from October, reaching an annual rate of 1.77 million. Existing-home sales decreased by 4.3% compared to the prior year, with a median price of $351,500, up 3.4% from last year.
- West: Sales fell by 7.2% from a month ago, settling at an annual rate of 640,000. Sales were down 8.6% from one year ago, with a median price of $603,200, up 5.3% from November 2022.
