US home sales could hit their highest level since 2006

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Despite the high prices, home buyers are not backing down.

Key points

  • Existing home sales rose 0.8% in October from September.
  • They are now on track to reach their highest level in 15 years.

Home sales often peak in the spring and summer, then begin to decline as the year draws to a close. But so far, that hasn’t happened this year.

In September, sales of existing homes rose 7% from the previous month, reports the National Association of Realtors. In October, home sales rose 0.8% from September.

In total, home sales this year are on track to surpass the 6 million mark. This would represent the highest number of existing homes sold since 2006.

Despite challenges, homebuyers aren’t holding back

This year has been difficult for potential buyers to manage. There has been an extremely limited number of homes available on the market, and this has meant that many properties this year have found themselves subject to bidding wars.

Bidding wars are great for sellers because they usually result in higher selling prices. They can also drive up house prices in general.

The latter is what happened this year, no doubt. The National Association of Realtors reports that the median selling price for existing homes in October was $353,900. This is a 13% increase from October 2020. It also marks 116 consecutive months of year-over-year home price increases. It is the longest sequence ever recorded.

So why are buyers clamoring for homes when supply is low and prices are so high? We can thank low mortgage rates for that.

Although mortgage rates did not reach the same record highs as last year, they remained fairly competitive throughout 2021. Buyers seeking affordable financing were willing to pay for homes.

Buyer interest is heightened by the fact that rental prices have also skyrocketed this year. After many landlords were forced to offer steep discounts in 2020 to entice tenants into signing leases, this year they are pushing ahead with rent hikes. For some buyers, buying a home of their own may, at this point, make more sense financially than paying a premium for a rental in which they cannot accumulate equity.

Will 2022 be a better time to buy a house?

It’s hard to say. Chances are, mortgage rates will remain competitive well into the new year. But whether the housing inventory opens enough to drive home prices down is a different story.

At the end of October, there were only 1.25 million homes for sale. This represents a decrease of 12% compared to the previous October. It also means that the housing market only has about half the number of homes it needs to create a more balanced scenario where neither buyers nor sellers clearly have the upper hand.

If things improve regarding the pandemic and the economy continues to recover from the hit it took in 2020, we could see more homes being listed as 2022 progresses. But that’s not guaranteed, and so 2022 could end up being another tough year on the home buying front.

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