In 2021, the housing market was very difficult for buyers to navigate. That’s because home values have skyrocketed nationally, putting many potential buyers in a tough spot.
One would think that the rise in house prices would have put buyers off and forced a decline in the real estate market. But the November sales figures say otherwise.
In November, sales of existing homes rose 1.9% from October, according to the National Association of Realtors. This is surprising not only because of inflated house prices, but also the time of year.
Home sales activity tends to decline as the weather cools in many parts of the country. Additionally, November marks the start of the holiday season, a time when many people are more focused on the holiday season than house hunting.
Still, there’s a good reason home sales picked up in November: Buyers may have wanted to jump at the chance to buy a home before mortgage rates rose. Although mortgage rates ended 2021 at competitive levels, in the last quarter of the year they were significantly higher than at the start of the year. And so buyers may have jumped on the November announcements, as limited as they may have been.
Will home sales continue to rise?
Buyer demand was strong across the housing market, despite a notable increase in home prices. In November, the median price of an existing home sold rose to $353,900. This represents a gain of nearly 14% over the previous year.
Interestingly, sales were strongest among high-end listings. Homes priced between $750,000 and $1 million saw sales increase 37% year over year, while homes priced over $1 million saw growth by 50%.
But how long will this momentum last? Much will depend on inventory levels, as these will have a direct impact on house prices.
Right now, home prices are up largely due to limited inventory. In fact, there’s a noticeable shortage of starter homes on the market today, which is why first-time home buyers in particular have a hard time breaking in.
If the housing stock recovers, home values should start to fall. This could, in turn, lead to strong sales in 2022.
But if home prices don’t start falling, buyers could start to pull back. That’s because we’re starting 2022 with higher mortgage rates than 2021. And if rates aren’t low enough to offset rising home prices, that alone could keep buyers out of the market.
Of course, that’s not necessarily a bad thing for real estate investors. Many investors have the ability to buy homes outright rather than mortgage them. So those looking for income properties or vacation rentals could benefit if buyer demand starts to decline.
All told, it will be interesting to see how the housing market shakes up in 2022 and whether the number of home sales continues to impress from the decline. But those selling should be aware that even though home sales rose in November, that trend won’t necessarily continue into 2022. And if mortgage rates continue to climb, those who are slow to list their homes could end up really lose. .