Potential existing-home sales fell in July as inventory concerns continued to threaten the market’s overall growth, according to First American’s Potential Home Sales Model.

According to the company’s analysis, the market potential for existing-home sales fell by 1.2% from 2018, equating a loss of 63,000 sales. This means that potential existing-home sales are 22.9% below the pre-recession peak of March 2004.

Despite this decline, July’s rate represents a 54.4% increase from the market potential low point reached in February 1993.

First American Chief Economist Mark Fleming said although the housing market essentially reached its potential in July, America’s growing home tenure length is dampening its future performance.

“While there were a flurry of forces boosting the market potential for existing-home sales in July, the low supply of homes for sale continues to hold market potential back,” Fleming said. “Existing-home sales make up approximately 90% of all home sales, which means existing homeowners must sell their homes in order for homes to be available for sale. Rising tenure length, therefore, means both fewer buyers and fewer homes on the market, keeping existing-home sales below potential.”

In July, America’s tenure length increased by 11% year over year, equating to a loss of nearly 425,000 potential home sales. Additionally, tightening credit also contributed to a loss of 33,000 potential existing-home sales, resulting in an overall annual decline, according to First American.

Fleming says the nation’s increasing tenure length is largely the result of the rate “lock-in” effect and more seniors aging in place.

“In the latest Freddie Mac weekly report of mortgage rates, the 30-year, fixed mortgage rate was 3.6%, approaching the lowest mortgage rate in history of 3.3%, which occurred in 2012. Additionally, existing homeowners are sitting on $5.7 trillion of tappable equity, money which could be used to fund the purchase of a move-up home,” Fleming said. “If mortgage rates remain this low, more existing-home owners may be enticed to move. It’s clear that demand for existing homes is strong, but one can’t buy what’s not for sale.”

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.