Existing-home sales at highest level since 2006

2020 was a shockingly strong year for the residential real estate market. A confluence of different economic and cultural circumstances caused the housing market to rally over the summer even as other major sectors of the economy languished under the effects of the pandemic. In fact, the surge led to 2020 having the highest number of existing-home sales in 14 years.

In December, the sale of existing homes went up 0.7% from November. This made for a seasonally adjusted rate of 6.76 million, according to the National Association of Realtors. This is an increase of 22% from December 2019. Moreover, the total number of existing-home sales in 2020 was 5.64 million, an increase of 5.6% from 2019. This is the highest number since 2006.

The high number of sales combined with low inventory is driving up the average cost of homes as well. The median price of a home rose in 2020 by 9% from the previous year to $296,500. The highest prices where recorded in October, when the median price of existing homes peaked at $313,000.

A lot of different circumstances contributed to these record numbers. Even before the pandemic hit last March, interest rates were low. This combined with the rising Millennial generation entering their prime home-buying years already suggested that 2020 would be a strong year for existing-home sales.

COVID-19 also played a huge factor, of course. While sales slowed almost to a complete halt in March and April, the market quickly recovered over the summer and expanded into the usually slower fall season. Many homebuyers have been looking to leave crowded cities and go to the suburbs. Working and learning from home has also fueled demand for more space.

Perhaps most critically, the Federal Reserve lowered interest rates significantly to help bolster the U.S. economy. This has made mortgages much more affordable for many prospective homebuyers.

Remote work has freed up people in coastal tech and business centers like San Francisco and New York City to move elsewhere. Existing-home sales went up the most in the Midwest and South, with those regions experiencing 6.4% and 7% growth respectively.

Builders are also taking advantage of the high home sales. U.S housing starts rose 5.8% from November to December according to the Commerce Department, the highest seasonally adjusted rate since 2006. Homebuilders are confident in the market and working to increase the extremely low home inventory.

More oversight and tighter regulations on lending make the current market more sustainable and stable than it was back in 2006. Of course it is impossible to foresee the future, but economists are not anticipating a crash similar to what set off the Great Recession in 2007.

With interest rates remaining low for the foreseeable future and the market relatively stable, 2021 will continue to be a good year for homebuyers and sellers. Despite the high demand driving up average home prices, it is still a good time to buy given how low the interest rates still are.

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