Home buying potential rose in August despite ‘Delta dip’

Though down from the white-hot activity levels of the past year, potential home sales exceeded expectations in August, according to First American.

Potential existing home sales grew to a seasonally adjusted annualized rate of 6.4 million, up 9.9% from 5.82 million year-over-year and 0.05% from 6.395 million in July. August marked the 10th straight month where the adjusted potential sales total climbed. The company’s model also showed August buyers beat projections by 6.4% or about 407,600 units.

While COVID-19’s Delta variant surge weighs on economic outlooks and broader job gains, increased uncertainty has shown to not necessarily be a detriment to the housing market, First American Chief Economist Mark Fleming said in the report.

“The housing market’s relationship with this pandemic economy is complicated,” Fleming said. “While heightened economic uncertainty dims consumer confidence and may result in tighter credit, it also puts downward pressure on mortgage rates. The economy may be taking a ‘Delta dip,’ but the unexpected burst of increased house-buying power has boosted housing market potential.”

The contrast between First American’s August potential sales estimate and the actual existing home sales for the month, which was lower — at an annualized 5.8 million, as reported by the National Association of Realtors — indicates that the market is underperforming given current conditions.

First American's potential home sales model makes a seasonal adjustment of existing home sales based on “the historical relationship between existing-home sales and U.S. population demographic data, homeowner tenure, house-buying power in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market,” according to the company.

Mortgage rates trended downward in August from July, leading to a monthly 0.9% increase in consumer purchasing power, or the equivalent of $1,700. The growth of labor demand relative to supply boosted the median income by 0.5% and added $2,800 in buying power to the average household. Combined, borrowers gained $4,500 worth of home buying power in August and it raised market potential by about 19,000 unit sales.

Of course, the continual inventory shortage puts a cap on lending activity. Homeowner tenure, already around 20-year highs, increased monthly in August and led to 7,000 fewer potential sales. The lack of housing supply, while driving towering price appreciation, also keeps options limited and consumers from listing.

“While low mortgage rates can spur home-buying demand, many existing owners who have refinanced into even lower mortgages are less incentivized to move,” Fleming said.