US present house gross sales rise in December; home costs hit report excessive in 2024

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. present house gross sales elevated to a 10-month excessive in December, however additional good points 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, house gross sales in 2024 had been the bottom in three a long time. The median home worth final yr hit a report excessive of $407,500. Whereas housing provide has improved, it stays beneath pre-pandemic ranges.

“With mortgage charges near 7% and customarily comfortable homebuying sentiment, energy in present house gross sales is unlikely to be sustained,” mentioned Alice Zheng, an economist at Citigroup (NYSE:C). “We don’t count on a lot additional upside for housing demand near-term.” 

House gross sales rose 2.2% final month to a seasonally adjusted annual charge of 4.24 million models, the very best stage since February. Current house gross sales are counted on the closing of a contract, and December’s gross sales seemingly mirrored transactions that occurred at the very least three months earlier when mortgage charges had been comparatively low.  

Economists polled by Reuters had forecast house resales would rise to a charge of 4.19 million models. 

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 most important acquire since June of 2021, largely pushed by transactions for homes value $500,000 and above. 

A complete of 4.06 million beforehand owned homes had been offered final yr, the bottom quantity since 1995.

A survey from mortgage finance company Fannie Mae (OTC:FNMA) on Wednesday predicted weak present house gross sales within the first half of the yr, noting that “new houses are actually priced competitively with present houses and are much more out there.” 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 may 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 charge on a 30-year fixed-rate mortgage is slightly below 7% having risen from as little as 6.08% on the finish of September.

The U.S. central financial institution’s cautious method to charge cuts this yr was underscored by a separate report from S&P International displaying an increase in inflation in January, with companies paying greater costs for inputs and passing on the elevated prices to customers. 

Shoppers’ 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.

Shoppers’ 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 reducing inflation to the Fed’s 2% goal has nearly stalled, although underlying worth pressures subsided in December.

AFFORDABILITY HEADWINDS 

U.S. shares had 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 may attain a commerce take care of 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 minimize charges on the March assembly and the chance of a minimize in Could is a coin flip,” mentioned Jeffrey Roach, chief economist at LPL Monetary (NASDAQ:LPLA). “As charges stay elevated, housing affordability can be a serious 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 house costs elevated.

The median present house worth shot up 6.0% from a yr earlier to $404,400 in December. It elevated 4.7% to a report excessive of $407,500 in 2024. Many of the single-family houses offered in December had been within the $250,000-$750,000 worth vary. 

Housing stock fell 13.5% to 1.15 million models 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 steadiness between provide and demand.

Properties sometimes 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 report low of 24% in 2024. Economists and realtors say a 40% share is required for a sturdy 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.