Contract closings decreased 1% from a month earlier to a 3.78 million annualized rate, according to National Association of Realtors data released Friday. For all of 2023, sales slipped back to the lowest level since 1995.

Back then, there were roughly 74 million fewer people in the country and the median home price was about $114,600, less than a third of what it is now.

The housing market — one of the most interest-rate sensitive parts of the economy — reeled last year as the Federal Reserve raised borrowing costs to the highest level since the early 2000s.

Policymakers have since pivoted toward cutting rates, sending mortgage rates down from a peak near 8% in October. But many existing homeowners are still hesitant to list their properties and move until rates fall further.

"The latest month's sales look to be the bottom before inevitably turning higher in the new year," said NAR Chief Economist Lawrence Yun. "Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months."

Picking up

Yun noted that activity is picking up, and data this week showed mortgage applications for home purchases climbed to the highest level since July. Homebuilder sentiment has improved as well, which should help boost inventory of new construction.

A separate report Friday showed US consumer sentiment soared in early January to the highest since 2021 as short-term inflation expectations slipped to a three-year low. The share of respondents to the University of Michigan survey with a favorable view of homebuying conditions rose by the most in two years.

Last month, the number of previously owned homes for sale dropped to 1 million, the lowest since March. At the current sales pace, selling all the properties on the market would take 3.2 months. Realtors see anything below five months of supply as indicative of a tight resale market.

That lack of inventory is helping to keep prices elevated. The median selling price climbed to $382,600 in December from a year ago, reflecting increases in all four regions. Prices hit a record of $389,800 in 2023.

Some 56% of the homes sold were on the market for less than a month. Properties remained on the market for 29 days, compared with 25 days in November.

In the resale market, "a full recovery to the pre-pandemic sales rate is expected to take years," according to new projections from Fannie Mae, which cited the high cost of homes relative to people's incomes.

Existing-home sales account for the majority of purchases and are based on contract closings. Data on new-home sales, which reflect contract signings, are due next week.

Digging deeper

• Sales fell in the Midwest and South
• Sales of single-family homes as well as condominiums and co-ops both declined last month
• First-time buyers made up a historically low 29% of purchases in December
• Cash sales represented 29% of total sales. Investors, who often purchase with cash and are therefore less sensitive to mortgage rates, made up 16% of the market
• Sales were down 9.2% from a year earlier on an unadjusted basis