First American Reports Market Potential Continues Slide

February 21, 2017

The lack of homes for sale is making current homeowners reluctant to sell because of concern over the ability to find a home to buy, according to First American Financial’s latest Potential Home Sales model.

The report shows that potential existing-home sales decreased to a seasonally adjusted, annualized rate (SAAR) of 5.5 million.

“While higher mortgage rates did reduce the market’s potential, they also will have the positive effect of moderating house price appreciation,” said Mark Fleming, chief economist at First American. “More troubling is the lack of homes for sale, which is causing a ‘matching-trap’ where current homeowners are reluctant to sell because of concerns about the ability to find a home to buy and the likelihood that their new mortgage will have a higher rate than their existing mortgage.” 

In January, the market potential for existing-home sales fell by 1.9 percent compared with a year ago, a decline of 107,000 (SAAR) sales. Currently, potential existing-home sales is 328,000 (SAAR) or 13.8 percent below the pre-recession peak of market potential, which occurred in July 2005.

“The low inventory of homes for sale, currently 3.6 months’ supply, continues to be a concern,” Fleming added. “Tight supply accompanied by rising prices is more indicative of a market reacting to a shift in the willingness of homeowners to list their homes for sale, and less indicative of a market reacting to a shortage of demand due to affordability issues. Restricted demand would result in lower quantity of homes for sale and lower, not higher, prices.”

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