Lower Mortgage Rates Yet to Close Performance Gap, According to First American Potential Home Sales Model
—Market conditions are ripe for increasing home sales with one glaring exception. The supply of homes for sale remains tight, keeping existing home sales below potential, says Chief Economist
- Potential existing-home sales increased marginally to a 5.25 million seasonally adjusted annualized rate (SAAR), a 1.1 percent month-over-month increase.
- This represents a 56.3 percent increase from the market potential low point reached in
February 1993 . - The market potential for existing-home sales declined by 0.2 percent compared with a year ago, a loss of 11,170 (SAAR) sales.
- Currently, potential existing-home sales is 1.48 million (SAAR), or 22.0 percent below the pre-recession peak of market potential, which occurred in
March 2004 .
Market Performance Gap
- The market for existing-home sales is underperforming its potential by 1.5 percent or an estimated 80,150 (SAAR) sales.
- The market performance gap increased by an estimated 18,840 (SAAR) sales between
May 2019 andJune 2019 .
Chief Economist Analysis: Housing Market Underperforms Despite
“The housing market underperformed its potential in
“In June, housing market potential benefited from a 10.7 percent year-over-year increase in consumer house buying power as 30-year, fixed mortgage rates, an important component of consumer house-buying power, fell to their lowest point since
What’s the Fed Got to Do with It?
“With the Federal Reserve Open Market Committee (FOMC) meeting less than two weeks away, many are wondering about the fate of the Federal Funds Rate, and its impact on the housing market. The CME group estimates the probability of a 25-basis point reduction at 72 percent, virtually a sure thing,” said Fleming. “Yet, changes to the short-term rate matter little to the housing market because mortgage rates, particularly the 30-year, fixed-rate mortgage, are benchmarked to the 10-year
“In
It’s
“This month, the surge in house-buying power, driven largely by lower mortgage rates, contributed a gain of 98,800 potential home sales compared with last month and an even more dramatic 272,000 potential home sales compared with last year,” said Fleming. “Indeed, mortgage rates are approaching the historically low level of 3.44 percent last seen in
The Main Force Impeding Market Potential
“While increasing house-buying power improved housing affordability and boosted the incentive to sell, the low supply of homes for sale continues to hold the market back,” said Fleming. “Tenure length increased by 0.7 percent compared with one month ago, contributing to a loss of nearly 33,000 potential home sales. The homeowner’s prisoners dilemma, rate 'lock-in' (albeit less so now) and seniors aging in place have all contributed to rising tenure length.
“The housing market is unique because existing homeowners influence both the demand and supply side of the market. In 2018, just over 6 million homes were sold in the
What Insight Does the Potential Home Sales Model Reveal?
“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our Potential Home Sales Model measures what home sales should be based on the economic, demographic and housing market environments.”
Next Release
The next Potential Home Sales Model will be released on
About the Potential Home Sales Model
Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and
Disclaimer
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2019 by First American. Information from this page may be used with proper attribution.
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