Real Estate

Demand for houses still grows despite interest rates increasing

Millennial demand remains strong even in seller-market

Potential existing-home sales decreased in February as interest rates continue to rise, 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 home sales increased to a 5.7 million seasonally-adjusted, annualized rate. While this is down 0.5% from January, or 28,000 sales, it is up 2.4% over the past 12 months.

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 U.S. population demographic data, income and labor market conditions in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market.

Although January existing home sales increased to the fastest pace in a decade, First American’s report shows the market underperformed its potential by 4.5% or 142,000 sales. In February, that underperformance sank to 2.5%.

“Steady income and job growth combined with increased building permit activity has increased the market potential for home sales on an annual basis,” First American Chief Economist Mark Fleming said. “Demand from Millennials and first-time homebuyers remains robust despite the strong spring sellers’ market and rising rates, resulting in a shrinking underperformance gap, as the market aligns with its potential.”

And this market potential looks to only grow stronger in the coming months, even as interest rates continue to increase.

“Nevertheless, the outlook for further increases in market potential remains bullish, as strong job and income growth, and increasing demand from Millennials and first-time home buyers in general, bode well for the housing market,” Fleming said. “Additionally, according to the most recent First American Real Estate Sentiment Index, there is increasing confidence among real estate professionals that buyer demand will remain strong, even if rates exceed 5%.”

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3d rendering of a row of luxury townhouses along a street

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