Home sales outperformance continues to inch up, with room to move

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Sharp Credit – Credit News – Credit Information

Existing-home sales exceeded their market potential again in August, and the improvement may continue for some time before there’s a correction, according to First American.

There were an additional 41,519 home sales in August, 0.8% above what the First American Potential Home Sales Model estimated. First American measures home sales using a seasonally adjusted, annualized rate.

For August, First American calculated the potential for 5.18 million units sold on a SAAR basis. That was a 0.2% month-over-month increase compared with July. But it was 102,760 SAAR units or 1.9% lower than for August 2018.

Existing home sales

“Given the historical relationship between existing-home sales and population demographic data, homeowner tenure, house-buying power, house price trends and conditions in the financial market, the pace of existing-home sales is exceeding what we believe is fundamentally supported by the market. The main reason? Rising tenure length,” said First American Chief Economist Mark Fleming in a press release.

“While several forces are working to boost the market potential for existing-home sales, the low supply of homes for sale continues to hold market potential back,” he said, with the main reason being current homeowners extending their tenure in their property.

Over the past six months, existing-home sales outperformed their potential, but by a very small percentage.

“When the actual level of existing-home sales is significantly above the market potential for home sales, the likelihood of a market correction increases,” Fleming explained.

“Today, the performance gap is not at the level that implies a possible market correction. In fact, there are signs that the market potential for existing-homes may begin to rise,” said Fleming. “The year-over-year growth in tenure length has been slowing since March of this year and it is conceivable that it could stabilize or even decline.”

He pointed to the Sept. 12 Freddie Mac Primary Mortgage Market Survey, which reported the 30-year conforming mortgage at an average of 3.56%, still historically low, although up 7 basis points from the previous week.

“If mortgage rates remain this low or even fall further, more existing-home owners may be enticed to move as the rate ‘lock-in’ effect fades,” said Fleming. “While actual existing-home sales are marginally outperforming market potential this month, declining mortgage rates could be the factor that bridges the gap.”



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