After suffering a major drop in November 2015, existing-home sales turned the tables with the largest monthly increase ever recorded in December.
Many economists in the mortgage industry felt was November's slump was just a temporary fallback for a huge comeback from the backlog of mortgage purchases during the implementation of the “Know Before You Owe” mortgage rule, commonly known as the TILA-RESPA Integrated Disclosure (TRID) rule, which went into effect on October 3, 2015.
The National Association of Realtors (NAR) reported Friday that existing-home sales rose 14.7 percent to a seasonally adjusted annual rate of 5.46 million in December, up from 4.46 million in November. Year-over-year, existing-home sales are up 7.7 percent, and December's jump will mark the largest increase ever.
"While the carryover of November's delayed transactions into December contributed greatly to the sharp increase, the overall pace taken together indicates sales these last two months maintained the healthy level of activity seen in most of 2015," said Lawrence Yun, NAR Chief Economist. "Additionally, the prospect of higher mortgage rates in coming months and warm November and December weather allowed more homes to close before the end of the year."
"December's rebound in sales is reason for cautious optimism that the work to prepare for Know Before You Owe is paying off. However, our data is still showing longer closing timeframes, which is a reminder that the near-term challenges we anticipated are still prevalent." -NAR President Tom Salomone
The report also found that the median price for an existing home in December rose for the 46th consecutive month of year-over-year to $224,100, up 7.6 percent from last December's price of $208,200. Inventory fell 12.3 percent to 1.79 million existing homes for sale, and is now down 3.8 percent year-over-year in December. Unsold inventory is at its lowest level since January 2005 at a 3.9-month supply in December.
Yun stated, "Although some growth is expected, the housing market will struggle in 2016 to replicate last year's 7 percent increase in sales. In addition to insufficient supply levels, the overall pace of sales this year will be constricted by tepid economic expansion, rising mortgage rates and decreasing demand for buying in oil-producing metro areas."
According to the NAR, the first-time buyers share was at 32 percent in December, up from 30 percent in November and 29 percent a year ago. For the year, first-time buyers made up 30 percent of homebuyers, up 1 percentage point from 2014 and 2013.
"First-time buyers were for the most part held back once again in 2015 by rising rents and home prices, competition from vacation and investment buyers and supply shortages," Yun explained. "While these headwinds show little signs of abating, the cumulative effect of strong job growth in recent years and young renters' overwhelming interest to own a home should lead to a modest uptick in first-time buyer activity in 2016."
NAR President Tom Salomone, Broker-Owner of Real Estate II Inc. in Coral Springs, Florida said, "December's rebound in sales is reason for cautious optimism that the work to prepare for Know Before You Owe is paying off. However, our data is still showing longer closing timeframes, which is a reminder that the near-term challenges we anticipated are still prevalent. NAR advised members to extend the time horizon on their purchase contracts to address this concern, and we'll continue to work with our industry partners to ensure 2016 is a success for consumers, homeowners and Realtors alike."
"We should expect next month's numbers to stabilize from the erratic November and December swings as agents and lenders continue to adapt to these new lending regulations. Last, the Federal Reserve's decision to increase interest rates by 0.25 percent last month didn't impact existing home sales, since mortgage rates have actually dropped sharply over the past month," said Ralph B. McLaughlin, Chief Economist at Trulia.
Click here to view the full report.