In December, potential existing-home sales moderately increased from the previous month and inched forward from 2018 levels, according to First American’s Potential Home Sales Model.
“In December, the market potential for existing-home sales in December increased 1.1% to a seasonally adjusted annualized rate of 6.15 million compared with a year ago, but the housing market still underperformed its potential by 9.6%,” First American Chief Economist Mark Fleming said.
Notably, the report highlights that the gap between actual existing-home sales and the market potential for home sales narrowed by 2.1% from the previous month.
First American points out this represents a 64.7% increase from the market potential low point reached in February 2011.
Fleming explained that the housing market has the potential to support more than 593,000 additional home sales at a seasonally adjusted annualized rate.
The market for existing-home sales is underperforming its potential by 9.6%, or an estimated 593,000 sales. Furthermore, the market performance gap decreased by an estimated 129,000 sales month-over-month, according to the report.
The report highlighted that rising mortgage rates have impacted both existing homeowners and first-time home buyers.
“The housing market has experienced a decades-long decline in the 30-year, fixed mortgage rate, dropping from a high of 18% in 1981 to a low of nearly 3% in 2012,” Fleming continued. “This long-run decline increased affordability and encouraged existing homeowners to move. However, in 2016, the trend reversed, and mortgage rates began to slowly increase, reaching nearly 5% last November.”
According to Fleming, this period of rising rates has dissuaded existing homeowners from selling their home.
Furthermore, Fleming notes that rising rates have reduced affordability in some high-cost markets, discouraging some potential first-time home buyers from entering the market.
However, Fleming indicates that recent stock market volatility is actually helping homebuyers.
“A steep sell-off in U.S. stocks caused by investors seeking safe-haven from global and domestic economic uncertainty caused the 10-year Treasury yield to decline, and mortgage rates fell alongside it,” Fleming said. “In fact, the average 30-year, fixed-rate mortgage in December fell 23 basis points compared with the previous month.
Fleming said the decline in mortgage rates is a welcome relief to prospective home buyers who have mostly experienced a year of rising rates and house prices.
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.
Published at Tue, 22 Jan 2019 18:41:00 +0000