Home sales come closer to matching potential: First American
The gap between potential and actual existing home sales is narrowing even though supply shortages still vex the market, according to First American’s latest report.
Existing home sales as measured by First American’s model underperformed potential sales by 2.5% or 127,000 units on a seasonally adjusted basis in February. In the prior month, existing-home sales underperformed potential sales by 5.3% or an estimated 293,000 seasonally adjusted sales.
There was the potential for 5.17 million seasonally adjusted sales in February, a 1.5% increase over January. Compared with February 2018, the market potential declined by 2.9%, a loss of 153,000 sales.
Likely sellers who did not list their homes because they could not obtain a new mortgage at a rate equal to or lower than their current one cut the market potential by 90,000 sales over the past three months, said First American Chief Economist Mark Fleming in a press release.
The lack of newly constructed homes coming on the market contributed to a decline of another 8,000 potential sales during the same period.
But the next few months are looking better for sales.
"We've seen mortgage rates decline and wages rise — both trends work to boost house-buying power and fuel greater market potential for home sales, setting the stage for a stronger than expected spring home buying season," Fleming said.
"The decline in mortgage rates over the last three months may have encouraged some homeowners, who were 'rate locked-in' by rising mortgage rates, to re-enter the market."
"Additionally, millennials that were previously priced out of the market when rates were higher in 2018 are likely to jump back in. The increase in house-buying power directly contributed to a gain of nearly 131,000 potential home sales in the last three months, by far the strongest driver of market potential," Fleming said.
"Continuing low mortgage rates and a strong labor market will fuel demand as the spring home-buying season ramps up. In addition, the recent increase in housing starts means home builders are pushing through new construction projects, which should help alleviate the supply shortage in the future," said Fleming. "The net effect? We expect the spring home-buying season to be stronger than anticipated just a few months ago."