Mortgage Rates Champion Growth In Potential Existing Home Sales

In April, potential existing-home sales increased 0.1% from the previous month, narrowing the market’s improvement gap, according to First American’s Potential Home Sales Model.

“The housing market continued to underperform its potential in April 2019, but the performance gap shrank compared with March,” First American Chief Economist Mark Fleming said. “Actual existing-home sales remain 1.3% below the market’s potential, but the performance gap narrowed from 2% last month, according to our Potential Home Sales Model.”

According to the company’s analysis, this means the housing market has the potential to support 68,000 more home sales at a seasonally adjusted annualized rate.

All in all, this represents a 54.1% increase from the market potential low point reached in February 1993.

So, what’s driving improvement growth? Well, Fleming said April’s lower mortgage rates were a catalyst.

“Lower mortgage rates in April loosened the “rate lock-in effect” that has created a financial disincentive that prevents many existing homeowners from selling their homes,” Fleming said. “However, it was not enough to reduce the average tenure length, the amount of time a typical homeowner lives in their home, which has increased dramatically in the last year.”

“Since existing homeowners supply the majority of the homes for sale and increasing tenure length indicates homeowners remain hesitant to sell, the housing market faces an ongoing supply shortage – you can’t buy what’s not for sale,” Fleming said.

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.

Posted on housingwire.com on 5/20/19.