MortgageReal Estate

First American: Mortgage rates champion growth in potential existing home sales

But market potential for existing sales declines 1.3% year over year

In April, potential existing-home sales increased 0.1% from the previous month, narrowing the market’s improvement gap, according to First American’s Potential Home Sales Model.

“The housing market continued to underperform its potential in April 2019, but the performance gap shrank compared with March,” First American Chief Economist Mark Fleming said. “Actual existing-home sales remain 1.3% below the market’s potential, but the performance gap narrowed from 2% last month, according to our Potential Home Sales Model.”

According to the company’s analysis, this means the housing market has the potential to support 68,000 more home sales at a seasonally adjusted annualized rate.

All in all, this represents a 54.1% increase from the market potential low point reached in February 1993.

So, what’s driving improvement growth? Well, Fleming said April’s lower mortgage rates were a catalyst.

“Lower mortgage rates in April loosened the “rate lock-in effect” that has created a financial disincentive that prevents many existing homeowners from selling their homes,” Fleming said. “However, it was not enough to reduce the average tenure length, the amount of time a typical homeowner lives in their home, which has increased dramatically in the last year.”

“Since existing homeowners supply the majority of the homes for sale and increasing tenure length indicates homeowners remain hesitant to sell, the housing market faces an ongoing supply shortage – you can’t buy what’s not for sale,” Fleming said.

NOTE:  First American's potential home sales report measures existing-homes sales, based on the historical relationship between existing-home sales and U.S. population demographic data, including income and labor market conditions, price trends in the housing market and conditions in the financial market.

About the Author

Most Popular Articles

Housing market flashing recession signal

The housing market is signaling there will be an economic recession by the 2020 election, according to Benn Steil, director of international economics at the Council on Foreign Relations. “When income fails to keep pace with home prices, the latter must fall back,” the post said. “Falling home prices, in turn, drive down household spending.”

Oct 11, 2019 By

Latest Articles

CoreLogic: California home sales see worst August in 4 years

Last month, the California Association of Realtors predicted a slow down for the state’s housing market in 2020. According to a recent report by CoreLogic, cooling home sales are already here. In fact, August marked the fewest home sales for that month in four years.

Oct 14, 2019 By