T
he residential real estate market experienced its strongest seasonal slowdown in nearly two years as temperatures plummeted over the festive season. According to Realtor.com's senior economist Ralph McLaughlin, homes spent an average of 70 days on the market in December, the slowest month since January 2023.

    Higher mortgage rates, which rose to 6.85% for the week ending Dec. 26, are largely to blame for the glacial pace of home sales. This has kept potential buyers on the sidelines as they wait for more favorable conditions. Despite a slight decrease in median listing price to $402,502, sellers took a breather last month with just 0.9% more homes newly listed compared to last year.

    The number of homes under contract but not yet sold continued to rebound in December, increasing by 7.4% compared to last year. However, this was still nearly half of November's 14.7% gain. Realtor.com's senior economic research analyst Hannah Jones notes that the market typically slows down at the end of the year as buyers and sellers focus on festivities.

    However, the slowdown is more pronounced than usual due to elevated mortgage rates hovering in the high 6% range since late October. Economists predict that slightly lower rates and time will chip away at the "lock-in" effect, where homeowners are unwilling to list their property due to low mortgage rates.

    Home prices continue to slide, with a 1.8% year-over-year decrease in median home price. However, when accounting for changes in inventory mix, the typical home listed this year has increased in asking price compared to last year. The median listing price per square foot increased by 1.3% in December.

    Inventory levels ticked up in December, with 22% more homes for sale compared to the same time a year ago. However, this is a dramatic deceleration from November's 26.2% year-over-year increase. The South continued to dominate the market, with a 26.7% surge in active listings.

    New listings were all over the map, with the South seeing the biggest gain and the Northeast and Midwest suffering losses. Compared to typical December levels before the COVID-19 pandemic, the South has fully closed the gap in housing stock, while the West is still lagging behind.

    Major metros with the biggest selection of properties for sale include Miami, Orlando, and Denver. Meanwhile, Atlanta had the most new listings, followed by Birmingham, AL. With about 871,600 active unsold listings on the market and some 350,000 under-contract listings, buyers may find more time to make a decision but fewer options.

    "It is challenging to perfectly time the housing market," Jones says. "Winter may be a great time to buy for some buyers who are looking for seller flexibility, while spring may be better for those who cannot find what they're looking for now and are willing to pay more."