By Nicole Friedman 

Sales of previously owned homes rose in 2020 to the highest level since 2006, as ultralow interest rates and remote work during the pandemic increased homebuying demand.

Existing-home sales rose 0.7% in December from November to a seasonally adjusted annual rate of 6.76 million, the National Association of Realtors said Friday. The December sales marked a 22% increase from a year earlier.

Existing-home sales totaled 5.64 million in 2020, up 5.6% from 2019 and the highest level since the 2006 pace of 6.48 million, NAR said.

The Covid-19 pandemic transformed the housing market in 2020, as home sales plunged in the spring due to widespread shelter-in-place restrictions and then quickly rebounded in the summer and fall. In a bright spot for the U.S. economy, strong demand is expected to continue this year, spurring more home construction and sales of furniture and home goods.

"Homeowners are smiling, because they are seeing price increases," said Lawrence Yun, NAR's chief economist. "It's just lack of inventory that is holding back even greater home sales."

Economists surveyed by The Wall Street Journal expected a 2% monthly decline in sales of previously owned homes, which make up most of the housing market.

Economists say today's housing market is less risky than during the last boom in 2006. Mortgage lending standards are tighter, and the supply of homes on the market is lower relative to demand. Many homeowners facing financial difficulties can also take advantage of current policies allowing them to skip monthly payments and make them up later.

The housing market was poised for a strong year in early 2020, as interest rates fell and the large millennial generation continued to age into its prime homebuying years. Mortgage rates have continued to decline since then. For the week ended Thursday, the average rate on a 30-year fixed rate mortgage was 2.77%, down from 3.6% a year earlier, said Freddie Mac.

"The real important driver has been the record low level of mortgage rates...which really enhanced affordability for home buyers," said Frank Nothaft, chief economist at housing-data provider CoreLogic Inc.

While demand has climbed, sellers remain wary of listing their homes for sale, partly due to concerns about virus transmission, real-estate agents say.

There were 1.07 million homes for sale at the end of December, down 16.4% from November and down 23% from December 2019, according to NAR. At the current sales pace, there was a 1.9-month supply of homes on the market at the end of December, a record low.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

January 22, 2021 10:34 ET (15:34 GMT)