Regionally, sales were flat month-over-month in the Northeast and fell 4.3% in the Midwest. Sales fell 2.8% in the South, but recovered 7.8% in the West. Year-on-year sales were lower in all regions.
The number of home closings is based on contracts likely signed in late October and November, when mortgage rates were significantly higher than they are now. The average interest rate on the 30-year fixed loan rose to about 8% in October before falling to 7% in November. According to Mortgage News Daily, it is currently at 6.89%.
“Last month’s sales appear to have bottomed out before inevitably rising in the new year,” NAR chief economist Lawrence Yun said in a news release. “Mortgage rates are significantly lower than they were two months ago and more inventory is expected to come onto the market in the coming months.”
The inventory fell 11.5% from November to December, but increased 4.2% compared to December 2022. There were 1 million homes for sale at the end of December, a 3.2-month supply at the current sales pace. A 6-month supply is considered settled between buyer and seller.
The tight supply is driving up real estate prices further. The median price of a home sold in December was $382,600, up 4.4% from December 2022. This is the sixth consecutive month of year-over-year price increases. The average price for the full year was $389,800, a record high.
Homes stayed on the market longer in December, with an average of 29 days, compared to 25 days in November. The share of cash sales rose to 29% from 27% in November. Retail investors, who account for a large share of cash sales, bought 16% of homes, up from 18% in November.
This drop in investor activity could be a bright spot for buyers. According to a recent study from Realtor.com, both higher home prices and higher financing costs resulted in investors purchasing fewer homes throughout 2023
“As rents continue to decline and more multifamily properties enter the rental market, investors may continue to take a more cautious approach to the real estate market,” said Danielle Hale, chief economist at Realtor.com. “This would mean one less source of competition for potential first-time homebuyers who are optimistic about the 2024 market, despite the challenge of purchasing a home at a below-average price that investors often target.”
First-time buyers are still struggling, accounting for just 29% of December sales, compared to 31% a year ago. Historically, they account for 40% of the market.