—This puts the likely rise in mortgage rates into perspective – they are unlikely to materially impact the housing market, says Chief Economist
- Potential existing-home sales increased to a 5.99 million seasonally adjusted annualized rate (SAAR), a 0.7 percent month-over-month decrease.
- This represents a 60.6 percent increase from the market potential low point reached in
February 2011 . - The market potential for existing-home sales increased by 1.9 percent compared with a year ago, a gain of 114,000 (SAAR) sales.
- Currently, potential existing-home sales is 1.29 million (SAAR), or 17.7 percent below the pre-recession peak of market potential, which occurred in
July 2005 .
Market Performance Gap
- The market for existing-home sales is underperforming its potential by 6.5 percent or an estimated 392,000 (SAAR) sales.
- The market performance gap decreased by an estimated 39,000 (SAAR) sales between
March 2018 andApril 2018 .
Chief Economist Analysis: Examining Two Rising Rate Scenarios
“In April, the housing market continued to underperform its potential. Existing-home sales were 6.5 percent below the market’s potential for existing-home sales, according to our Potential Home Sales Model,” said
“One reason housing supply remains limited is because the majority of existing homeowners have 30-year, fixed-rate mortgages with historically low rates. Now that rates are rising, they are hesitant to sell their homes because there is less incentive to sell,” said Fleming. “If they sell, they would lose the low mortgage rate they currently have and replace it with a higher rate and a more expensive monthly loan payment. As mortgage rates rise further, more existing homeowners will become rate-locked into their current homes.
“Given April’s 30-year, fixed mortgage rate of 4.47 percent, the market potential for existing-home sales at a seasonally adjusted annualized rate (SAAR) is 5.99 million,” said Fleming. “The early estimate of the annualized rate of existing-home sales in April was 5.60 million, so the market is underperforming its potential by an estimated 392,000 (SAAR) sales.”
Surprise – Rate Increases of 25 or 50 Basis Points Have Little Impact on Market Potential
“But, what may happen if mortgage rates increase another 25 or 50 basis points? According to our Potential Home Sales Model, if the 30-year, fixed-rate mortgage increases another 25 basis points, market potential for existing-home sales would fall by 11,500 sales. If the mortgage rate increased by 50 basis points, the market potential for existing-home sales would fall by 23,000 sales,” said Fleming. “While both increased rate scenarios reduce the market potential for existing-home sales, the reduction is small compared with the overall market potential for existing-home sales – almost 6 million sales.
“Understanding the resiliency of the housing market in a rising mortgage rate environment puts the likely rise in mortgage rates into perspective – they are unlikely to materially impact the housing market,” said Fleming. “While interest rates may rise, the driving force behind the increase are healthy economic conditions that are favorable to consumers. The healthy economy encourages more homeownership demand and spurs household income growth, which increases consumer house-buying power. Mortgage rates are on the rise because of a stronger economy and our housing market is well positioned to adapt.”
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. © 2018 by First American. Information from this page may be used with proper attribution.
About First American
View source version on businesswire.com: https://www.businesswire.com/news/home/20180523005304/en/
Media Contact:
Corporate Communications
or
Investor Contact:
Investor Relations
Source:
Agricultural Insurance Market 2022: Global Perspective, Opportunities, Market Dynamics, Regional Analysis, Competitive Strategies and Major Players
Wolters Kluwer Tax & Accounting IFRS 17 Expertise Offered Through Webinars and eBook
Advisor News
- Retirees Have Few Money Worries, Survey Shows
- Captrust Adds $1.4 Billion Long Island-Based FCE Group
- Strategize With Clients To Avoid A Nasty Tax Surprise In Retirement
- Fidelity’s New Xchange Will Allow Firms To Build Tailored Technology Platforms
- AmeriServ Financial Reports Increased Earnings For 3Q And Year To Date
More Advisor NewsAnnuity News
Health/Employee Benefits
- UnitedHealth Group Predicts Booming Medicare Growth
- ACA Price Increase In Virginia Less Than Projected
- Louisiana ‘Obamacare’ Policies Set For Rate Drop, Barring ‘Ugly Surprises’
- Survey Shows Continuing Rise In Long-Term Care Costs
- Americans Remains Confused About Health Care Law, Survey Finds
More Health/Employee BenefitsLife Insurance