The housing market has been hot -- but things recently started cooling off.
Though the U.S. economy is in shambles, the housing market has pretty much exploded this year. For months, low mortgage rates have fueled buyer demand, driving home prices upward across the nation.
But buyers may have had enough. After five consecutive months of gains, November home sales fell 2.5% from the month before, according to the National Association of Realtors. That could be a sign that today's inflated prices are driving buyers away.
Buying a home today: a mixed bag
On the one hand, there are savings to be reaped by locking in a low mortgage rate. On the other hand, what today's buyers gain via competitive rates, they lose in the form of higher home prices.
The median home sale price in November was $310,800, which is a 14.6% increase from the year before. That, combined with a lack of inventory, could be causing buyers to delay their home searches.
As of late November, housing inventory stood at a 2.3-month supply -- an all-time low. For context, a four- to five-month supply is needed to equalize the housing market so it doesn't favor sellers so heavily. In fact, there were only 1.28 million homes available for sale at the end of November, which represents a 22% drop from a year prior.
Interestingly enough, demand is highest for higher-priced homes. Home sales for properties priced between $100,000 and $250,000 were up just 1.1% on the year before. In contrast, home sales for properties listed at $750,000 to $1 million were up almost 85%. This tells us the wealthy may not have a problem stretching themselves, but moderate earners may feel very differently.
It could pay to wait
The fact that home sales declined in November could indicate demand will slowly but surely ease up. And that puts prospective homeowners in a stronger position to buy in 2021.
There's a good chance mortgage rates will remain competitive in the coming year. They could, in fact, drop even lower than they are now. By sitting tight, buyers could position themselves to spend less on a home and get great a great rate on their mortgage.
Waiting on a home search could also result in a wider selection of inventory. That, too, could work to buyers' advantage. The more homes there are on the market, the less likely buyers will be to settle for properties that require extensive updates or repairs -- items that only drive up costs even further. And, more competition could drive sellers to make more effort to move their homes off the market, whether by making updates and repairs themselves or being more flexible on price.
It's too soon to know if home sales will continue to decline month by month in the near term. December has historically been a slow season for home purchases given the holidays. And the winter months tend to be sluggish in general. It'll be interesting to see how housing inventory fares by spring, and how willing buyers are to bite.
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