They are one of the factors boosting home sales potential says economist
Home sales are lagging their potential due to several factors but rising prices is not necessarily one of the negative forces.
That’s because the resulting growth in equity among existing homeowners is more likely to make them consider a larger or better home says First American deputy chief economist Odeta Kushi.
Low equity is more likely to exacerbate one of the factors currently weakening home sales potential; the trend towards longer tenures.
According to the most recent data from January 2019, tenure length has increased 9% compared with a year ago and First American says that reduced the market potential by 391,000 potential home sales compared with one year ago.
Kushi’s analysis of why home sales are below their potential also points to a rise in mortgage rates in January (0.43%) compared to a year earlier which reduces potential sales by a further 57,000.
There are smaller influences on potential sales from tighter credit standards (2,000 fewer potential sales) and reduced supply of available homes (1,000 fewer potential sales).
The First American potential home sales model shows that if new housing supply and homeowner tenure were at historical average levels, existing-home sales in February should be 5.4 million SAAR; but with current levels of supply and length of tenure, existing-home sales are expected to be approximately 5.0 million SAAR.
