Lack of Housing Supply Still Creating Downward Pressure

Posted by Michael Bates on August 25, 2017 No Comments

First American’s proprietary Potential Home Sales model for the month of July 2017 shows that a lack of supply “continues to be the main story of the 2017 housing market.”

“Just a few months ago, the difference between the actual level of existing-home sales and the market’s potential was negligible, but supply issues have become a significant impediment and are preventing the market from reaching its potential,” says Mark Fleming, chief economist at First American.

Potential existing-home sales increased to a 5.82 million seasonally adjusted, annualized rate (SAAR), a 0.2% month-over-month increase. This represents a 93.75 increase from the market potential low point, which was reached in December 2008.

In July, the market potential for existing-home sales increased by 0.1% compared with a year ago – a gain of 6,000 (SAAR) sales. Currently, potential existing-home sales is 541,000 (SAAR), or 9.3% below the pre-recession peak of market potential, which occurred in July 2005.

The market for existing-home sales is underperforming its potential by 4.7%, or an estimated 273,000 (SAAR) sales. Market potential grew by an estimated 10,000 (SAAR) sales between June 2017 and July 2017.

“The housing market’s potential for existing-home sales improved slightly, growing 0.2 percent between June 2017 and July 2017, as the rate for a 30-year, fixed-rate mortgage remained little changed at 4.0 percent,” Fleming adds.

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand,” he explains. “Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time.”

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