The market’s potential for existing home sales increased in June, and home sales are even outperforming their potential, according to the updated Potential Home Sales model from First American Financial Corp.

The current potential existing-home sales sit at 780,000, an increase of 0.8% or 45,000 sales from last month to a seasonally adjusted annualized rate of 5.59 million. But the market potential for home sales fell 3.8% or 220,000 sales from last year.

“Demand for homes continued to remain strong this month, largely due to continued demand from more Millennials deciding they want to be homeowners,” First American Chief Economist Mark Fleming said. “Yet, the supply of homes for sale continues to decrease.”

“Existing homeowners fear not being able to find something affordable to buy, and a lack of residential construction workers is increasing the cost of building and slowing the pace of new construction,” Fleming said. “The result is a supply and demand imbalance that produces upward pressure on house prices and decreasing affordability.”

While this latest market potential is up 85.8% from the market potential low from December 2008, it is still down 14% from the pre-recession peak of market potential, which occurred in July 2005.

But as it turns out, the market actually outperformed its potential by 0.6% or 31,000 sales in June, First American’s report showed.

“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.”