Housing market outlook pits homebodies against pandemic-fueled demand, US first model of potential home sales
SANTA ANA, Calif .– (COMMERCIAL THREAD) –First American Financial Corporation (NYSE: FAF), one of the world’s leading providers of title insurance, settlement services and risk management solutions for real estate transactions, today released First American’s proprietary model of potential home sales for the month of May 2021 .
Potential home sales in May 2021
Potential sales of existing homes rose to 6.34 million seasonally adjusted annualized rate (SAAR), an increase of 0.8% month over month.
This represents an increase of 81.8 percent from the potential market low reached in February 1993.
The market potential for existing home sales increased 22.7% from a year ago, a gain of 1,173,038 sales (SAAR). The year-over-year comparison is very important this month as economic activity in May 2020, including the housing market, has been drastically reduced due to the pandemic. Housing rebounded strongly over the summer.
Currently, potential sales of existing homes are 453,138 (SAAR), 6.7% below the peak of pre-recession market potential, which occurred in April 2006.
Market performance gap
The existing home sales market exceeded its potential by 4.3%, or around 272,588 sales (SAAR).
The market performance spread increased by approximately 31,341 Sales (SAAR) between April 2021 and May 2021.
Chief Economist’s Analysis: Housing Market Potential Strengthens in May Despite Supply Headwinds
“The potential of the housing market strengthened further last month, according to our model of potential housing sales, despite significant headwinds in supply. In May, the potential of the housing market rose 0.8% from April and is now almost 23% higher than the decline caused by the pandemic last May, ”said Mark Fleming, chief economist at First American. “Compared to two years ago, the potential of the housing market is almost 18% higher.
“A drop in mortgage rates and a slight increase in household income fueled an increase in the purchasing power of homes large enough to offset the largest monthly increase in tenure since August 2020. Despite demand driven by the pandemic For more space and to move away from in urban areas, the average tenure – the length of time a typical homeowner lives in their home – continues to set new records, ”Fleming said. “You can’t buy what isn’t for sale, even if your purchasing power indicates you can afford it. ”
Pandemic-accelerated demand trends collide with homebodies – Housing market potential goes winner
“The purchasing power of a home, which is a function of mortgage rates and household income, increased by about $ 7,100 in May, contributing to a gain of almost 31,000 potential home sales over the previous month. last month. Mortgage rates and household income both moved in favor of increased home purchasing power in May, offsetting the historic lack of supply, ”Fleming said. “The main cause of the lack of supply? Homeowners, existing homeowners who choose to stay put and not put their homes up for sale, a trend that has hampered the potential of the housing market for several years and continues to worsen.
Homebodies, the stationary object
“The average occupancy period jumped almost 4% from a year ago and 0.4% from last month. The monthly gain was the largest since August 2020. The monthly increase in average tenure contributed to a loss of more than 17,000 potential home sales, ”said Fleming. “As existing owners provide the majority of homes for sale and the increase in tenure indicates owners are not selling, the housing market faces an ongoing supply shortage.
“Before the real estate crash of 2007, the average length of stay for a person in their home was around five years. The average tenure increased to around eight years in the aftermath of the housing market crisis between 2008 and 2016, ”said Fleming. “The most recent data shows that the average lifespan of a person in their home reached 10.6 years in May 2021, an all-time high.
“Two trends are blocking homes in place and leading to increased tenure. First, for homeowners with the lowest rates, slightly higher rates in a historically low inventory environment may deter some from selling their homes, preventing a larger offer from reaching the market. Second, older people choose to age in place, ”Fleming said. “Analysis of ASEC’s 2020 data reveals that the homeownership rate has actually increased for baby boomers in 2020. While a 2019 study by Freddie Mac shows that while seniors and adults born between 1931-1959 behaved like previous generations, they would have freed nearly 1.6 million additional housing units on the market by 2018. As seniors continue to choose to age at home, there will be fewer existing homes available for sale.
What does all of this mean for the potential of the housing market?
“It all comes down to the fundamentals. The buying power of homes boosts the market potential for existing home sales, but the market potential is limited by what you can buy. Housing demand is strong as millennials continue to own home, mortgage rates remain low and the economy begins to improve, ”said Fleming. “Still, we need more existing homes for sale to meet this growing demand. You can’t buy what isn’t for sale – and individuals don’t seem ready to ease the supply pressure by keeping a lid on potential market growth.
The next potential home sales model will be released on July 21, 2021 with data for June 2021.
About the Potential Home Sales Model
Potential home sales measures existing home sales, which include single-family homes, townhouses, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing home sales and population demographics. US population, purchasing power in the US economy, price trends in the US real estate market, and financial market conditions. When the actual level of existing home sales is significantly higher than potential home sales, the pace of sales is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, annualized and seasonally adjusted rates of actual sales of existing homes below the level of potential sales of existing homes indicate that market turnover is below the rate fundamentally supported by current conditions. Seasonally adjusted, annualized existing home sales may exceed or fall below the potential sale rate for a variety of reasons, including non-traditional market conditions, political constraints, and the behavior of market participants. Recent estimates of potential home sales are subject to revision to reflect the most recent information available on the economy, housing market and financial conditions. The potential home sales model is released each month before the National Association of Realtors Existing Home Sales Report.
The opinions, estimates, forecasts and other views contained on this page are those of the Chief Economist of First American, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable and useful information, they do not guarantee that the information is accurate, up to date, or fit for a particular purpose. © 2021 by First American. The information on this page can be used with appropriate attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk management solutions for real estate transactions with a heritage dating back to 1889. First American also provides title factory management services; title and other records and images of real estate; assessment products and services; home warranty products; banking, trust and wealth management services; and other related products and services. With total sales of $ 7.1 billion in 2020, the company offers its products and services directly and through its agents in the United States and abroad. In 2021, First American was appointed to Fortune 100 best companies to work for® list for the sixth consecutive year. You can find more information about the company at www.firstam.com.