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First American: A lack of housing inventory slows growth in potential existing sales

In May, potential existing-home sales rose only 0.4% from April

In May, potential existing-home sales increased 0.4% from the previous month, according to First American’s Potential Home Sales Model.

According to the company’s analysis, potential existing-home sales rose marginally to a 5.20 million seasonally adjusted annualized rate.

First American Chief Economist Mark Fleming said the housing market outperformed its potential during the month of May.  

“Actual existing-home sales are 0.2% above the market’s current potential, according to our Potential Home Sales model,” Fleming said. “Even as mortgage rates have decreased, and household income has increased, the market is underperforming compared to its potential from a year ago.”

Fleming is right, as the market potential for existing-home sales retreated by 1.5% from 2018. All in all, this represents an overwhelming loss of 79,500 sales.

So, what’s slowing sales growth? Well, Fleming says the slowdown can be attributed to the housing market’s unprecedented homebody era.

“Today we are in an unprecedented homebody era as many existing homeowners continue to feel rate-locked into their homes and seniors continue to age in place,” Fleming said. “Looking ahead, more than half of all existing-homes are owned by baby boomers and the silent generation and they will eventually age out of homeownership. But right now, housing supply remains tight – you can’t buy what’s not sale — and market potential is lower because of it.”

According to a recent report from Redfin, a slowdown in housing inventory contributed to lackluster home-sales growth in May. 

Redfin Chief Economist Daryl Fairweather said although recent surges in mortgage applications reflect heightened homebuyer demand, a lack of inventory continues to prevent growth.

“We haven’t yet seen a commensurate increase in U.S. home sales, and I don’t expect sales to increase substantially in the long run. That’s because there still aren’t enough homes for sale for all of the people who want to buy homes,” Fairweather said. “In May, inventory posted its smallest increase in eight months, and fewer new listings came on the market than last year.”

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.

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