In 2021, the housing market was a very tricky one for buyers to navigate. That's because home values soared on a national level, putting many would-be buyers in a tough spot.
You'd think that rising home prices would've turned buyers off and forced a pullback in the housing market. But November's sales numbers say otherwise.
In November, sales of previously owned homes rose 1.9% compared to October, according to the National Association of Realtors. That's surprising not just due to inflated home prices but also the time of the year.
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Home sale activity tends to decline as the weather gets colder in many parts of the country. Also, November marks the start of the holiday season, a time when many people are more focused on year-end celebrations than house hunting.
But still, there's a good reason home sales picked up in November: Buyers may have wanted to jump on the chance to purchase a home before mortgage rates rise. Though mortgage rates closed out 2021 at competitive levels, during the last quarter of the year, they were notably higher than earlier in the year. And so buyers may have pounced on November listings, limited as they may have been.
Will home sales continue to rise?
Buyer demand has been strong throughout the housing market, despite a notable increase in home prices. In November, the median price of an existing home sold rose to $353,900. That represents a gain of almost 14% from a year prior.
Interestingly, sales were strongest among higher-end listings. Homes priced between $750,000 and $1 million saw sales growth of 37% compared to the previous year, while homes priced above $1 million saw growth of 50%.
But how long will that momentum last? A lot will depend on inventory levels, as those will directly impact home prices.
Right now, home prices are up largely due to limited inventory. In fact, there's a notable dearth of starter homes on the market today, which explains why first-time homebuyers in particular have struggled to break in.
If housing inventory picks up, home values should start to come down. That could, in turn, lead to strong sales in 2022.
But if home prices don't start to dip, buyers may start to pull back. That's because we're starting off 2022 with higher mortgage rates than we saw in 2021. And if rates aren't low enough to offset higher 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 capacity to purchase homes outright rather than mortgage them out. And so those looking for income properties or vacation rentals could benefit if buyer demand starts to wane.
All told, it'll be interesting to see how the housing market shakes out in 2022 and whether home sale numbers continue to impress versus decline. But those selling should be mindful of the fact that while home sales were up in November, that trend won't necessarily persist into 2022. And if mortgage rates continue to climb, those who hold off on listing their homes could end up really losing out.
