By Lucia Mutikani
WASHINGTON (Reuters) -U.S. present dwelling gross sales elevated to a 10-month excessive in December, however additional positive aspects are more likely to be restricted by elevated mortgage charges and home costs, that are preserving many potential consumers on the sidelines.
Regardless of the bigger-than-expected rise reported by the Nationwide Affiliation of Realtors on Friday, dwelling gross sales in 2024 have been the bottom in three many years. The median home worth final yr hit a file excessive of $407,500. Whereas housing provide has improved, it stays beneath pre-pandemic ranges.
“With mortgage charges near 7% and usually comfortable homebuying sentiment, power in present dwelling gross sales is unlikely to be sustained,” mentioned Alice Zheng, an economist at Citigroup (NYSE:). “We don’t anticipate a lot additional upside for housing demand near-term.”
Residence gross sales rose 2.2% final month to a seasonally adjusted annual fee of 4.24 million items, the very best degree since February. Present dwelling gross sales are counted on the closing of a contract, and December’s gross sales seemingly mirrored transactions that came about no less than three months earlier when mortgage charges have been comparatively low.
Economists polled by Reuters had forecast dwelling resales would rise to a fee of 4.19 million items.
Gross sales elevated within the densely populated South, the West and Northeast, however fell within the Midwest. Gross sales surged 9.3% on a year-on-year foundation, the biggest acquire since June of 2021, principally pushed by transactions for homes value $500,000 and above.
A complete of 4.06 million beforehand owned homes have been bought final yr, the bottom quantity since 1995.
A survey from mortgage finance company Fannie Mae (OTC:) on Wednesday predicted weak present dwelling gross sales within the first half of the yr, noting that “new houses are actually priced competitively with present houses and are way more accessible.” It forecast the favored 30-year fixed-rate mortgage would common 6.7% within the first quarter and edge down to six.6% within the second quarter.
Mortgage charges elevated late final yr in tandem with U.S. Treasury yields, which have jumped amid financial resilience, particularly within the labor market, and investor worries that President Donald Trump’s plans for tax cuts, broad tariffs and mass deportations might fan inflation.
The Federal Reserve has scaled again its projected rate of interest cuts for this yr to solely two from the 4 it estimated in September, when it launched its coverage easing cycle. The typical fee on a 30-year fixed-rate mortgage is just under 7% having risen from as little as 6.08% on the finish of September.
The U.S. central financial institution’s cautious method to fee cuts this yr was underscored by a separate report from S&P International displaying an increase in inflation in January, with companies paying larger costs for inputs and passing on the elevated prices to shoppers.
Customers’ inflation expectations additionally jumped in January, a report from the College of Michigan confirmed, amid fears of upper costs for items ought to the Trump administration press forward with tariffs on imports.
Customers’ one-year inflation expectations rose to an eight-month excessive of three.3% from 2.8% in December. Lengthy-run inflation expectations climbed to three.2% from 3.0% final month. Progress decreasing inflation to the Fed’s 2% goal has nearly stalled, although underlying worth pressures subsided in December.
AFFORDABILITY HEADWINDS
U.S. shares have been buying and selling barely decrease. The greenback slid towards a basket of currencies after Trump mentioned on Thursday his dialog with Chinese language President Xi Jinping final week was pleasant and he thought he might attain a commerce cope with China. Trump has, nevertheless, promised tariffs on Canadian and Mexican items in February. U.S. Treasury yields declined.
“Inflation knowledge make it unlikely that the Fed will lower charges on the March assembly and the likelihood of a lower in Might is a coin flip,” mentioned Jeffrey Roach, chief economist at LPL Monetary (NASDAQ:). “As charges stay elevated, housing affordability might be a significant headwind for potential homebuyers.”
Whereas the inventory of homes available on the market has improved in comparison with 2023, entry-level houses stay scarce. That’s preserving dwelling costs elevated.
The median present dwelling worth shot up 6.0% from a yr earlier to $404,400 in December. It elevated 4.7% to a file excessive of $407,500 in 2024. A lot of the single-family houses bought in December have been within the $250,000-$750,000 worth vary.
Housing stock fell 13.5% to 1.15 million items final month, which is typical in winter. Provide elevated 16.2% from one yr in the past. Stock must rise by roughly 30% to return to pre-pandemic ranges.
At December’s gross sales tempo, it could take 3.3 months to exhaust the present stock of present houses, up from 3.1 months a yr in the past. A four-to-seven-month provide is seen as a wholesome stability between provide and demand.
Properties usually stayed available on the market for 35 days in December, in comparison with 29 days a yr in the past. First-time consumers accounted for 31% of gross sales versus 29% a yr in the past. They made up a file low of 24% in 2024. Economists and realtors say a 40% share is required for a strong housing market.
All-cash gross sales constituted 28% of transactions final month, down from 29% a yr in the past. Distressed gross sales, together with foreclosures, represented solely 2% of transactions, unchanged from final yr.
“The upshot is that purchasing exercise ought to stay stagnant,” mentioned Ruben Gargallo Abargues, an assistant economist at Capital Economics.
