Despite low inventory conditions, existing-home sales bounced back in December and climbed above an annual pace of 5 million sales for the sixth time in seven months, according to the National Association of Realtors®. Median home prices for 2014 rose to their highest level since 2007, but total sales fell 3.1 percent from 2013.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent to a seasonally adjusted annual rate of 5.04 million in December from a downwardly-revised 4.92 million in November. From a year ago, December sales were higher by 3.5 percent and are now above year-over-year levels for the third straight month.

For all of 2014, there were 4.93 million sales, a 3.1 percent decline from 2013 (5.09 million). The national median existing-home price was $208,500, the highest since 2007 ($219,000) and a 5.8 percent increase from 2013 ($197,100).

Sales picked up in December to close a 2014 that got off to a sluggish start but showed encouraging signs of activity the second half of the year. Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated. Sales were measurably better in the second half – up 8 percent compared to the first six months of the year.

Total housing inventory at the end of December dropped 11.1 percent to 1.85 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace – down from 5.1 months in November. Unsold inventory is now 0.5 percent lower than a year ago (1.86 million).

A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates. Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.

The median existing-home price for all housing types in December was $209,500, which is 6.0 percent above December 2013. This marks the 34th consecutive month of year-over-year price gains.

The percent share of first-time buyers was 29 percent in December, down from 31 percent in November but up from a year ago (27 percent). First-time buyers in 2014 represented an average of 29 percent for the second straight year. A separate NAR survey released in late 2014 revealed that the annual share of first-time buyers fell to its lowest level in nearly three decades.

Realtors® are optimistic the Federal Housing Administration’s plan to reduce annual mortgage insurance premiums will have a positive impact on first-time buyers once it goes into effect on January 26. NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for homebuyers. Realtors® support responsible lending to qualified borrowers and the move to lower premiums will enable more buyers to enter the market while continuing to protect taxpayers from the risky lending practices that led to the housing crash.

All-cash sales were 26 percent of transactions in December, up from 25 percent in November and 32 percent in December of last year. Individual investors, who account for many cash sales, purchased 17 percent of homes in December, up from last month (15 percent) but down from December 2013 (21 percent). Sixty-three percent of investors paid cash in December.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage in December fell to 3.86 percent, its lowest level since May 2013 (3.54 percent), and down from 4.00 percent in November. The average annual rate was 4.17 percent in 2014.

Distressed sales – foreclosures and short sales – were up slightly in December (11 percent) from November (9 percent) but are down from 14 percent a year ago. Eight percent of December sales were foreclosures and 3 percent were short sales. Foreclosures sold for an average discount of 15 percent below market value in December (17 percent in November), while short sales were discounted 12 percent (13 percent in November).

Properties typically stayed on the market the same amount of time in December (66 days) as November (65 days) but for a slightly shorter time frame than a year ago (72 days). Short sales were on the market the longest at a median of 98 days in December, while foreclosures sold in 61 days and non-distressed homes took 66 days. Thirty-one percent of homes sold in December were on the market for less than a month.

Single-family and Condo/Co-op Sales

Single-family home sales increased 3.5 percent to a seasonally adjusted annual rate of 4.47 million in December from 4.32 million in November, and are 4.0 percent above the 4.30 million pace a year ago. The median existing single-family home price was $210,200 in December, up 6.3 percent from December 2013.

Existing condominium and co-op sales declined 5.0 percent to a seasonally adjusted annual rate of 570,000 units in December from 600,000 in November, and are unchanged from a year ago. The median existing condo price was $204,000 in December, which is 3.2 percent higher than a year ago.