Originally published on January 11, 2023, by Li-Ning Huang and Mark Palim for Fannie Mae.
In recent discussions of our economic outlook, we have been asked multiple times why home sales dropped so sharply this past year given a pronounced preference shift among consumers during the pandemic toward single-family housing. Indeed, single-family housing was an unintended beneficiary of the pandemic and its associated policy response. During the pandemic, mortgage rates reached historically low levels, with the average 30-year fixed mortgage rate hovering around 3 percent through the end of 2021. Despite a low inventory-to-sales ratio during this time period by historical standards, as well as rising home prices, both home sales and purchase mortgage originations reached record highs in 2021.1 Anecdotal and analytical evidence suggest that the pandemic prompted people to move from smaller housing units in high-density city centers to larger homes in lower-density areas; and this was particularly true of first-time homebuyers.2 Overall, the rise in home sales was fueled by both first-time homebuyers and move-up buyers. In fact, demand was so strong that the median number of days that homes were on the market shortened from 74 in 2017 to 46 in 2021.