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First American: Housing market barely underperforms full potential

Performing 47% better than last year

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The potential for home sales dropped slightly in March and the market is almost meeting that potential, according to the Potential Home Sales model from First American Financial Corp., a provider of title insurance, settlement services and risk solutions for real estate transactions.

Potential existing-home sales decreased to a 5.5 million seasonally adjusted, annualized rate in March, down 1.2% from February, according to the model. However, the potential for sales is up 0.6% or 31,000 sales from March 2016.

“Despite higher mortgage rates, the potential for home sales increased on an annual basis driven by steady income and job growth, along with a surge in building permits,” First American Chief Economist Mark Fleming said. “While it may be a little late for this spring, the increase in building permits is a welcome sign that some relief may be in sight for the inventory shortages that are holding back many markets from realizing their full potential this spring.”

After the monthly decrease, the market for existing-home sales underperformed its potential by 2.3%, an estimated 129,000 sales. While the market is underperforming, according to the model, its performance improved 47% from last year, when the housing market was underperforming its potential by 275,000 sales.

“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,” Fleming said. “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,” he said. “Historical context is critically important. Our potential home sales model measures what we believe a healthy market level of home sales should be based on the economic, demographic, and housing market environments.”

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