Home Affordability Heavily Affected by a Lack of Inventory

Posted by Michael Bates on July 21, 2017 No Comments
Categories : Residential Mortgage

First American’s proprietary Potential Home Sales model for the month of June 2017 shows that a supply and demand imbalance continues to put upward pressure on house prices and is squeezing affordability.

In June, potential existing-home sales increased to a 5.59 million seasonally adjusted, annualized rate (SAAR), representing a 0.8% month-over-month increase. This figure represents an 85.8% increase from the market potential low point, which was seen in December 2008.

Also, the market potential for existing-home sales fell by 3.8% in June compared with a year ago, which is a decline of 220,000 (SAAR) sales. Currently, potential existing-home sales is 780,000 (SAAR), or 14% below the pre-recession peak of market potential, which occurred in July 2005. Market potential grew by an estimated 45,000 (SAAR) sales between May 2017 and June 2017.

Notably, the market for existing-home sales is outperforming its potential by 0.6%, or an estimated 31,000 (SAAR) sales.

“Inventory shortages continue to challenge the market,” says Mark Fleming, First American’s chief economist. “According to the National Association of Realtors, the inventory of existing-homes for sale in May is 8.4 percent lower than a year ago. This is the 24th consecutive month of year-over-year declines.

“A lack of residential construction workers is increasing the cost of building and slowing the pace of new construction,” he adds. “The result is a supply and demand imbalance that produces upward pressure on house prices and decreasing affordability.”

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