The market's rebound from the COVID-19 crisis has been nothing short of amazing, says First American chief economist
In October, First American’s measure of market potential for existing-home sales jumped by 9% year over year to a 5.98 million seasonally adjusted annualized rate (SAAR) sales – nearly 21% higher than its low point in April of this year.
Buttressed by strong fundamentals, the October gain was an unprecedented swing in the market for existing-home sales, which outperformed its potential by 0.7% or an estimated 40,495 (SAAR) sales.
The market performance gap also shrank by an estimated 139,751 (SAAR) sales between September and October.
“The housing market’s historic rebound since bottoming in the spring has been nothing short of amazing. After falling to a near-decade low in May, existing-home sales hit a 14-year high in September,” said First American Chief Economist Mark Fleming
Negative impact of increased tenure length
Fleming attributed the good performance to the loosening of credit standards, along with rising house-buying power, equity, and household formation. Tenure length was the only economic force that had a negative impact on the housing market potential in October.
Read more: Why the housing market boom might not last
Tenure length, the average period someone lives in their home, continued to topple records – exceeding 10 years in October. The figure reduced market potential by 102,700 sales, according to First American’s Potential Home Sales Model.
“Rising tenure length means fewer and fewer people are listing their homes for sale, keeping housing supply tight. The dearth of supply is the primary constraint to housing market potential because you can’t buy what’s not for sale,” Fleming said. ”Analyzing the individual economic forces that have driven the recovery of market potential for existing-home sales can provide insight into how the housing market may fare in 2021.”
2021 forecast
Anticipating the housing market to make a “dramatic comeback” next year, Fleming expects mortgage rates to stay low and millennials to continue to form households, spurring demand for homes.
However, “tenure length appears poised to continue to rise, which will prolong the housing supply shortage and dampen housing market potential,” he said.
“The trend in housing market potential will likely depend on the labor market’s recovery and how lenders adjust credit standards,” Fleming said. “Will the labor market continue to recover or weaken in the coming months as we battle the pandemic, and will any labor market weakness impact potential home buyers? If there is more uncertainty, will lenders tighten credit once more? The historic rebound in housing market potential will slow down if lenders won’t lend and consumers can’t spend.”
