Home Sales Decline As Prices Reach All-Time High: Affordability A 'Major Challenge,' Economist Says

The housing market is facing a significant challenge as home sales continue to decline despite record-high prices, with affordability emerging as a major concern for potential buyers. According to data from the National Association of Realtors (NAR), existing home sales fell 1% from November to a seasonally adjusted annual rate of 3.78 million in December 2023, the slowest sales pace since August 2010. This decline comes amidst a backdrop of rising home prices, with the median national home sales price rising 4.4% from a year earlier to $382,600 in December 2023.



The primary factors contributing to the decline in home sales and the affordability crisis are:

1. Mortgage Rates: The increase in mortgage rates has made homeownership less affordable. In 2023, the average rate on a 30-year home loan was 6.6%, significantly higher than the 3.56% rate in 2020. This large gap in rates has limited the number of previously occupied homes on the market, as homeowners with lower rates are less likely to sell and face higher borrowing costs if they do (Source: Freddie Mac).
2. Inventory Shortage: The lack of available homes for sale has been a persistent issue, with just 1 million homes on the market at the end of December 2023, representing a 3.2-month supply. This shortage drives up prices and makes it difficult for buyers to find suitable properties (Source: National Association of Realtors).
3. Economic Uncertainty: The economic downturn and job insecurity have made it challenging for potential buyers to commit to purchasing a home. The uncertainty surrounding the economy and personal finances has led many to delay their homebuying plans (Source: Wells Fargo Economists).
4. High Prices: Despite the decline in sales, home prices have continued to rise, reaching record highs. The median national home sales price rose 4.4% from a year earlier to $382,600 in December 2023. This increase in prices, combined with higher mortgage rates, makes homeownership less affordable for many Americans (Source: National Association of Realtors).

These factors have contributed to the decline in home sales and have negatively impacted affordability, making it more challenging for buyers to enter the market and for sellers to find interested buyers.



Economists and housing experts have expressed concern about the affordability crisis and its potential consequences for the housing market. Lawrence Yun, the NAR's chief economist, stated, "The latest month's sales look to be the bottom before inevitably turning higher in the new year. Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months." However, the affordability challenge remains a significant hurdle for many potential buyers.

As the housing market continues to grapple with affordability issues, policymakers and industry stakeholders should consider implementing targeted measures to address these challenges. By promoting housing supply, providing financial assistance to low- and middle-income households, and encouraging innovative housing solutions, governments can help make homeownership more accessible and sustainable for a broader range of Americans.