Existing-home sales post best year since 2006

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"This low level of inventories has two significant impacts: It reduces the number of sales as there are fewer homes to be purchased and it pushes up re-sale prices, with the median sales price of existing homes sold up by 5.5% in 2016 - the fifth consecutive year in which prices rose by more than 5%", Berson said.

Existing homes sales ran at an annual pace of 5.49 million in December, NAR said, down 2.8 percent from the November level (5.64 million) and just 0.7 percent higher than the same month a year ago.

November's existing sales pace was revised up to 5.65 million units, which was the highest since February 2007, from the previously reported 5.61 million units.

"Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market", Lawrence Yun, chief economist for the trade association, said in a news release.

"We have this combination of higher home prices, higher interest rates and less inventory...a lot less inventory", Fettke said.

First time buyers held steady, making up 32% of the market, the same as November of 2016 and December 2015.

Total housing inventory at the end December was down 10.8% to 1.65m existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. "Consumer confidence continued to improve last year, and mortgage rates were below 4 percent for most of the year, which drove more housing demand and, in turn, pushed up prices".

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Existing home sales in the U.S. booked a weaker-than-expected December but saw their strongest year since 2006. At the current sales pace, there were 3.6 months' worth of available homes in December. The PHLX housing index.HGX was up 2.25 percent.

"We should continue to see some sales growth this year, but because of the tightness of inventory, our sales may plateau here as we hit the second half of the year", Hite said. The median price had been $200,000 in December 2015.

Mortgage rates could rise further as the Federal Reserve has forecast three rate hikes this year. The consensus estimate called for sales to decline to an annual rate of 5.55 million units.

According to NAR, about 750,000 to 850,000 home buyers would face higher costs, and 30,000 to 40,000 new home buyers would be sidelined without the reduction.

At the same time, the fixed 30-year mortgage rate increased 43 basis points in December from November to an average of 4.20 percent, according to data from mortgage finance firm Freddie Mac. There were 5.45 million sales during the year, up 3.8% compared to the full year 2015.

Sales were down in nearly every region in the country for December.

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