Housing market potential rises for the first time in nearly a year, according to the first-ever US model of potential home sales

SANTA ANA, Calif.–()–First American financial corporation (New York Stock Exchange: FAF), a leading provider of title, settlement and risk solutions for real estate transactions and a leader in its industry’s digital transformation, today released the First American Owned Home Sales Potential Model for the month of August 2022. Potential Home Sales measures what the health of the market’s level of home sales should be based on economic, demographic, and housing market fundamentals.

August 2022 Potential Home Sales

  • Potential sales of existing homes increased at a seasonally adjusted annualized rate (SAAR) of 5.61 million, a monthly increase of 2.1 percent.

  • This represents a 60.8 percent increase from the potential market low point reached in February 1993.

  • The market potential for existing home sales decreased 12.9 percent compared to the prior year, a loss of 832,800 (SAAR) sales.

  • Currently, potential existing home sales are 1,183,000 (SAAR), or 17.4 percent below the pre-recession peak of market potential, which occurred in April 2006.

Chief Economist Analysis: Market potential for existing home sales increased 2.1% in August

“August marked the first time in nearly a year that the housing market potential rose on a monthly basis, rising 2.1 percent compared to July at an estimated pace of 5.61 million at a seasonally adjusted annualized rate (SAAR),” said Mark Fleming, chief economist. in First American. “The month-over-month increase was also the largest monthly increase in housing market potential since December 2020, but housing market potential is still 12.9 percent lower than a year ago.”

“Using a dynamic simulation involving our potential home sales model, we can identify the market dynamics that influence potential existing home sales in August relative to July and determine whether they reduce or increase the housing market potential,” he said. Fleming. “While many dynamics can be closely monitored for their influence on the housing market, some considerations that go into the decision to buy and sell a home are personal and difficult to quantify. In August, those softer dynamics help explain the discrepancy between the rising housing market potential and the continued cooling of the actual housing market.”

The forces that drive the potential of the real estate market:

“Five of the six real estate market potential drivers drove potential home sales in August compared to a month ago. One of the main forces driving the housing market’s potential in August was a modest increase in purchasing power. The 30-year fixed mortgage rate decreased by 0.19 percentage point, while the median household income increased by 0.3 percent compared to a month ago,” Fleming said. “The result was a 2.5 percent increase in the purchasing power of homes, which increased the potential of the real estate market by more than 47,000 sales. However, the welcome uptick in home buying power is expected to fade quickly as mortgage rates have once again trended higher in the first few weeks of September.”

“Household formation, a primary and long-term driver of home purchase demand, also pushed up the market’s potential. Millennials are the largest generation in US history and most of them are aging in their prime to buy a home and build homes,” Fleming said. “Household formation continued to increase in August, contributing more than 4,000 potential home sales compared to the previous month.”

“The supply of new homes also boosted potential home sales. The lack of supply and the fear of not being able to find something to buy prevent many owners from selling. So as more new home supply comes onto the market, the risk of not being able to find something to buy decreases, which strengthens homeowners’ confidence in the decision to sell their existing homes,” Fleming said. “Compared to last month, more new home supply entered the market, increasing the potential housing market by nearly 1,300 potential home sales.”

The forces that hold back the potential of the real estate market:

“Sellers have largely stayed where they are, as many enjoy a mortgage rate that can be nearly three percentage points lower than current market mortgage rates,” Fleming said. “Since home sellers are also potential home buyers, homeowners who choose not to sell have reduced the potential housing market by 10,000 sales compared to a month ago.”

“The other factor that is probably holding back the potential of the market, but which is difficult to quantify, is economic uncertainty. Buying a home is the most important financial decision a person is likely to make, and that is based on financial security and confidence in the economy,” Fleming said. “The current inflationary environment and the risk of a recession with possible consequences in the labor market continue to be a cause for concern, which seriously affects consumer confidence. As potential home buyers and sellers wait out the period of economic uncertainty, purchase demand may be affected.”

What does this mean for the future potential of the real estate market?

“The increase in housing market potential indicates that market conditions may fundamentally support more sales compared to a month ago. But while the August drop in mortgage rates may have given buyers a brief respite from rapidly rising rates in recent months, it may not be enough to entice potential buyers back into the market during economic times. uncertain,” he said. Flemish. “Potential sellers are also facing economic uncertainty, as well as being subject to fixed rates on their homes. However, when the dust of economic uncertainty settles, buyers and sellers who were on the sidelines will be back in the housing game. Demographic trends support elevated buying demand in the coming years, so it’s a question of when, not if, for the housing market.”

next version

The next potential home sales model will be released on October 19, 2022 with data from September 2022.

About the Potential Home Sales Model

Potential Home Sales measures sales of existing homes, which include single-family homes, townhomes, condominiums, and cooperatives at a seasonally adjusted annualized rate based on the historical relationship between existing home sales and US population demographics. purchasing power in the US economy, price trends in the US housing market, and financial market conditions. When the actual level of existing home sales is significantly above potential home sales, the pace of turnover is not supported by market fundamentals and there is a higher probability of a market correction. Conversely, seasonally adjusted annualized rates of actual existing home sales below the level of potential existing home sales indicate that market turnover is below rate supported primarily by current conditions. Seasonally adjusted annualized actual sales of existing homes may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and behavior of market participants. Recent estimates of potential home sales are subject to revision to reflect the most current information available about the economy, housing market and financial conditions. The Potential Home Sales model is released prior to the National Association of Realtors’ Existing Home Sales Monthly Report.

Disclaimer

Opinions, estimates, forecasts and other views contained on this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, and should not be construed as indicative of business prospects or expected results. from First American, and are subject to change without notice. Although the First American Economics team attempts to provide reliable and useful information, it does not guarantee that the information is accurate, current, or suitable for a particular purpose. © 2022 by First American. Information on this page may be used with proper attribution.

About First American

First American Finance Corporation (NYSE: FAF) is a leading provider of title, settlement and risk solutions for real estate transactions. With its combination of financial strength and stability built over more than 130 years, innovative proprietary technologies, and unmatched data assets, the company leads the digital transformation of its industry. First American also provides data products to the title industry and other third parties; valuation products and services; mortgage subservice; home warranty products; banking, fiduciary and wealth management services; and other related products and services. With total revenues of $9.2 billion in 2021, the company offers its products and services directly and through its agents in the United States and abroad. In 2022, First American was named one of the 100 Best Companies to Work For by Great Place to Work® Y Fortune Magazine for the seventh consecutive year. You can find more information about the company at www.firstam.com.

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