But the outlook remains strong amid rising rates
Sales of existing homes underperformed market potential in August, but a thriving economy and growing first-time homebuyer demand support a positive outlook, according to the Potential Home Sales Model released by First American Financial.
The model revealed that potential existing-home sales increased to a seasonally adjusted annualized rate (SAAR) of 6.13 million, a 0.8% month-over-month increase, in August. Compared with a year ago, the market potential for existing-home sales increased by 2.9%, or a gain of 171,400 SAAR sales.
First American found that the market for existing-home sales is underperforming its potential by 6.5% or an estimated 400,800 SAAR sales. Despite the underperformance, the market performance gap decreased between July and August by an estimated 47,000 SAAR sales.
“In August, the housing market continued to underperform its potential. Actual existing-home sales are 6.5% below the market’s potential, according to our Potential Home Sales model. That means the market has the potential to support more than 400,000 more home sales at a seasonally adjusted annualized rate (SAAR),” First American Chief Economist Mark Fleming said. “Severe supply shortages have been the primary culprit for this performance gap – you can’t buy what’s not for sale. The supply shortage, combined with first-time home buyer demand, has created a strong seller’s market, where many potential buyers are bidding on the same few homes, which accelerates price appreciation.”
Fleming also said that aside from rising nominal prices, consumer house-buying power has been further eroded by increasing mortgage rates. Despite the upcoming likely change to the Federal Funds rate, Fleming said any downward pressure from rising rates on home sales should be overcome by the boost from the strong economy and first-time homebuyer demand.
