High interest rates kept U.S. home sales in a deep freeze for much of last year. It could be a while before the market experiences much of a thaw.
Americans bought just over four million previously owned homes last year, the National Association of Realtors said on Friday. That was the fewest since 1995 and far below the annual pace of roughly five million that was typical before the coronavirus pandemic.
Sales picked up a bit toward the end of the year, rising 9.3 percent in December from a year earlier. That increase probably reflected the dip in mortgage rates in the summer and early fall — to about 6 percent on average for a 30-year fixed-rate mortgage — which made homes more affordable for buyers.
But mortgage rates have since rebounded to about 7 percent, and most forecasters don’t expect them to come down much in the next few months. That makes a significant increase in home sales unlikely this year, said Charlie Dougherty, an economist at Wells Fargo.
“You saw sales beginning to perk up a little bit, but it’s still sluggish,” he said. “I don’t think it’s indicative of a really forceful or energetic recovery that’s going to be coming.”
Home prices soared during the pandemic, as Americans sought more space and rock-bottom interest rates made it easy to borrow. Real-estate agents told of frenetic bidding wars as buyers competed for available homes.
That frenzy suddenly stopped when the rapid increase in inflation led the Federal Reserve to raise interest rates to their highest level in decades. Interest rates on a 30-year fixed-rate mortgage jumped, from below 3 percent in late 2021 to nearly 8 percent two years later.
The combination of high prices and high interest rates made homes unaffordable for many seeking to buy. And owners, many of whom had either bought their homes or refinanced their mortgages when rates were low, had little incentive to sell. That kept inventories low and prices high.
There are hints that the housing market might gradually be returning to normal, as life events — new jobs, new babies, marriages, divorces — force owners to sell, and as buyers adjust to higher borrowing costs. Inventories have edged up, and surveys show more owners plan to sell.
But unless mortgage rates fall, that normalization process is likely to be slow, Mr. Dougherty said.
“I think it’s probably safe to say that home sales have found a floor,” he said. But, he added, “if you look at the overall level, it’s still very, very weak.”