But tenure length is set to rise due to owners with low rates
Homebuying power has been boosted in recent months as low mortgage rates and rising incomes combine.
But October brought an end to almost a year of declining mortgage rates with a 0.08 percentage point increase erasing the impact of the 0.2% month-over-month rise in household income.
First American chief economist Mark Fleming says this, together with rising home tenure, meant homebuying potential was weakened.
But the actual existing home sales in October exceeded market potential by 4.6% or an estimated 239,000 seasonally adjusted annualized rate (SAAR) sales based on First American’s Potential Home Sales Model.
Potential existing-home sales decreased to a 5.17 million (SAAR), a 0.6% month-over-month decrease.
“In 2019, consumer house-buying power, how much home one can afford to buy given household income and the prevailing mortgage rates, surged and provided a significant boost to housing market potential,” said Fleming. “Since the start of 2019, income has grown by 1.9% and mortgage rates have fallen by 0.77 percentage points, both dynamics sending house-buying power higher. As a result, house-buying power jumped 12.0% between January and October 2019.”
Fleming added that the average length of time someone lives in their home increased in October by 6.0% compared with January 2019, and 0.7 percent compared with September 2019.
“Increasing tenure length reduced the market potential for existing-home sales by 31,800,” said Fleming.
2020 outlook
Although the October dip in homebuying power may not be the start of a trend, next year could see a reduction between spring and summer depending on rates and wage increases.
Homebuying power is likely to remain around historic highs though, but buyers may be challenged by supply issues as tenure rate continues higher.
“As more buyers purchase homes with historically low rates and existing owners refinance, there will be more homeowners with a financial incentive to keep their current homes, and low mortgage rates, and not sell. This is the rate lock-in effect, and it means tenure length will likely continue to rise as well,” said Fleming. “The market potential for existing-home sales in 2020 will largely depend on the strength of the rate lock-in effect and whether house-buying power can increase sufficiently to offset it.”
