The National Association of Realtors said Friday that sales of existing homes rose 2.4 per cent last month to a seasonally adjusted annual rate of 5.04 million. But over the course of the entire year, sales fell 3.1 per cent to 4.93 million.
Only 29 per cent of sales went to first-time buyers last month, compared to a historic average of 40 per cent. Prospective buyers were priced out of the market due to rising home values and relatively stagnant incomes. Still, affordability has improved in recent months as mortgage rates have plunged, leading to the possibility of stronger sales in 2015.
"Sales will increase throughout 2015 as potential buyers feel more comfortable about the economic outlook and lenders are willing to make loans," said Stuart Hoffman, chief economist at PNC Financial Services.
Median home prices increased 6 per cent over the past 12 months to $209,500.
There were relatively few listings in December, as the supply of homes on the market dropped to 4.4 months from 5.1 months in November, the Realtors said. The supply was the lowest in two years.
Much of the gains in sales came from the West, with additional growth in the South. Sales slumped in the Northeast and Midwest.
Home-buying appears poised to improve, however.
"There are good supporting factors behind the housing market," said Jennifer Lee, a senior economist at BMO Capital Markets.
Strong job growth over the previous year has added nearly 3 million new paychecks to the economy. Mortgage rates have fallen sharply, and home values are rising at a slower clip, giving prospective buyers some financial leeway.
The Realtors expect sales will rise 8 per cent this year to 5.3 million homes. Much of that growth will hinge on first-time buyers getting out of the rental market.
Jed Kolko, chief economist at Trulia, predicts that much of the growth will occur in the suburbs.
For starters, the suburbs are more affordable, with prices rising 5.7 per cent per square foot last year, compared to an 8.1 per cent surge in urban neighbourhoods. Secondly, urban populations have risen in recent years because of what Kolko calls a "demographic jolt" from twenty-somethings renting close to downtown, a pattern that will soon reverse itself.
"As millennials get older, many will follow a familiar path: They'll partner up, have kids, and move to the suburbs," Kolko said in a report released this week.
Analysts expect the resilient U.S. economy to provide a tail wind this year, too. Employers added an average of 246,000 jobs a month last year as the unemployment rate dropped from 6.7 per cent to 5.6 per cent. While average hourly wages grew only slightly faster than inflation, the additional number of paychecks coupled by younger workers who are starting to move up the career ladder should put more first-time buyers in a better position.
Borrowing costs have also plummeted. With growing signs of a weakened global economy, investors have sought to shelter their money in U.S. Treasurys. That has pushed down bond yields and mortgage rates. The average 30-year mortgage rate has fallen to 3.63 per cent from 4.39 per cent a year ago, the mortgage company Freddie Mac said Thursday.
That decline translates into savings about $880 a year in mortgage payments for a $210,000 house. Rates have remained low even though the Federal Reserve in October ended its monthly bond purchases, which were meant to hold down long-term rates.
A slowing rate in the growth of housing values will likely also help sales. Home values surged at a double-digit pace nationwide in 2013, pricing out many would-be buyers in 2014. Annual price growth has now slowed to 4.5 per cent, as measured by the Standard & Poor's/Case-Shiller index, allowing more buyers back into the market.