Home sales in the U.S. ended 2021 on a low note in December, but annual sales activity for the entire year reached its highest level since 2006.

Existing home sales fell 4.6% to a seasonally adjusted 6.18 million million units in December from a month earlier, according to the National Association of Realtors (NAR). November existing home sales were revised slightly down to 6.46 million from 6.48 million. The number of sales was down 7.1% from the same month a year ago. The results were far more disappointing than analysts' expectations of a 0.5% month-over-month decrease to 6.43 million units, according to Bloomberg consensus estimates.

For the entire year, there were 6.12 million units sold in 2021, the most since 2006 and up 8.5% from the prior year when activity was fueled by pent up demand from COVID-19 lockdowns, according to the NAR. Prior to COVID, there were 5 million to 5.5 million unit sales per year. The December results could have been anticipated since pending home sales slipped in November, which is an indicator of future sales activity.

“December saw sales retreat, but the pullback was more a sign of supply constraints than an indication of a weakened demand for housing,” said Lawrence Yun, NAR’s chief economist, also attributing the slowdown in the final month of 2021 to rising mortgage interest rates, “which can produce mixed results. Some people want to hurry and buy, others want to wait to buy. Rising rates will cut into home sales."

The 30-year fixed-rate mortgage rose to its highest level at 3.56%, up from the previous week and hitting a new high not seen since March 2020, according to Freddie Mac.

“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” said Sam Khater, Freddie Mac’s chief economist, in a press statement. “As a result of higher mortgage rates, purchase demand has modestly waned in advance of the spring homebuying season. However, supply remains near historically tight levels and home prices remain high, keeping the market competitive.”

Total housing inventory at the end of December was 910,000 units, down 18.0% from November and down 14.2% from one year ago — the lowest level since 1999, when NAR started tracking inventory for all housing types (NAR started tracking single family home inventory in 1982). Unsold inventory sits at a 1.8-month supply at the present sales pace, down from 2.1 months in November and from 1.9 months in December 2020.

"Sales volumes in December fell prey to a simple truism: It’s very hard for sales to meaningfully grow when there’s just not that much available to buy," said Kwame Donaldson, Zillow senior economist, in a statement. "Existing home sales fell back to earth in December after an unexpectedly strong autumn, and the seasonally adjusted annual rate of sales ended 2021 below the level reported at the end of 2020 — the first time since 2018 that the rate of existing home sales closed out the year below its starting point."