The housing market rallied in December suggesting 2016 could be a very good year for buyers and sellers.
Existing home sales were up nearly 15 percent from the month prior, tallying a healthy 5.46 million existing homes sold on a seasonally-adjusted, annualized basis.
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To put that number in perspective, homes sold at a rate of just over 5 million in December 2014, a standout month in its own right.
The Existing Home Sales report, published monthly by the National Association of Realtors (NAR), also revealed that the West led all major regions with a staggering 23 percent increase in sales, yet all four regions showed strong growth.
Sales “Speed Bump” in November
Low mortgage rates and pent-up demand fueled December’s lift off. New documentation rules relating to the “Know Before You Owe” initiative rolled out in late-2015 initiative pushed transactions into December.
The new rules caused a mere speed bump in home sales, however. In total, 2015 went out with a bang, resulting in a nearly 8 percent increase in home sale growth for the year. With 5.26 million sales, 2015 was the busiest buying year since 2006, right before the housing market downturn.
Causes of the Dramatic Sales Increase
The threat of rising mortgage rates prompted more people to enter the housing market last year. In addition, NAR’s chief economist Lawrence Yun thinks that Mother Nature might have contributed to the strong end-of-year activity.
An unseasonably warm start to winter made it a favorable time for home shoppers.
Rising home prices contributed to strong sales too.
Prospective buyers are under pressure to close transactions before they are priced out of homes they want. From December 2014 to December 2015, the median existing-home price rose 7.6 percent marking the forty-sixth month in a row of year-over-year gains.
Check today’s home purchase mortgage rates.
Will Growth Continue in 2016?
One potential obstacle standing in the way of growth in the early part of 2016 is a drop in housing inventory.
Right now, there are fewer homes for sale and that number keeps dropping. In December alone, available homes decreased 12 percent bringing the number to just 1.79 million.
That may sound like a lot of homes, but it is only four months’ worth at the rate home buyers are purchasing homes. The typical supply over the past three years has been closer to six months.
Interested buyers are under pressure to move quickly. Homes are selling quickly, with 32 percent of home sales in December on the market for less than 30 days.
First-time Home Buyers Could Flood the Market
Yun predicts that 2016 might bring back more first-time buyers. Over the past couple of years, that group was a bit more wary of purchasing a home because of an uncertain job market and economy.
They also faced competition from those buying property for investment purposes or as second/vacation homes. However, as employment continues to tick up, and renters’ desire to own a home grows stronger, that could change.
Springtime usually brings more houses on the market, spelling more opportunity for first-time home buyers. The prudent ones will check their credit scores and request a home loan pre-approvals. There’s no other way to be ready to buy when the right home comes on the market.
Home buyers should also carefully watch home prices and interest rates, and pinpointing how much longer they can afford to wait if those continue to rise.
Taken all together, all signs point to a busy first half of the year for existing home sales, with more of a leveling out in the second half..
Any way you look at it, 2016 will be a banner year for home buying. Mortgage rates are currently below 4% and homes are still affordable.
Click here to see today’s home purchase mortgage rates.
What Should Home Buyers Do Now?
The best plan of action for new homebuyers is to find out whether they qualify to buy a home via a lender’s pre-approval letter.
This simple piece of paper shows real estate agents and sellers that you are qualified and serious about making an offer.