First American: Market Hovering ‘At Potential’
Historically low real house prices, increases in jobs, rising wages, low mortgage rates and greater credit availability are fueling consumer optimism about the housing market, said First American Financial Corp., Santa Ana, Calif.
The company’s Potential Home Sales model for July showed the market for existing home sales continues to underperform its potential by 1.3 percent or an estimated 92,000 seasonally adjusted, annualized rate of sales, an improvement over last month’s revised under-performance gap of 1.8 percent, or 104,000 sales.
First American said in July, the market potential for existing-home sales grew by 0.15 percent compared to June, an increase of 8,000 sales, and increased by 5.4 percent from a year ago. Potential existing home sales increased to 5.71 million, representing an 89.9 percent increase from the market potential low point reached in December 2008, but still down 433,000 or 7.6 percent from the pre-recession peak of market potential, which occurred in July 2005.
Mark Fleming, chief economist with First American, said the West, which continues to be hampered by tight supply and large price gains, was the only region to experience a year-over-year decline in sales of 0.8 percent. Meanwhile the Midwest, Northeast and South charged ahead with year-over-year increases in sales of 4.7 percent, 5.6 percent and 3.2 percent, respectively.
Low inventories remain an issue, Fleming said, dropping to a 4.6-month supply, down from the 4.7-month supply seen in April and May and from the 4.9-month supply a year ago.
“The constrained supply in this sellers’ market continues to frustrate potential homebuyers and adds further upward pressure to nominal home prices,” Fleming said. “While nominal price growth remains strong, prices adjusted for the impact of income and interest rate changes on consumer house-buying power remain historically very low.”
Fleming noted, however, that consumers appear to be more optimistic about the housing market. The Fannie Mae Home Purchase Sentiment Index reached a new high in July, up 3.3 points from June to 86.5, with large gains in consumers’ expectations for lower rates and continued house price growth. The survey also showed a growing number of consumers leaning towards purchasing rather than renting if they were to relocate. And the Mortgage Bankers Association reported a loosening of credit in July, with its Mortgage Credit Availability Index increasing by 1.0 percent compared to June.
“Mortgage rates have continued to move lower, absorbing the impact of rising prices and giving consumers increased leverage and buoyed house-buying power,” Fleming said, noting the average rate for a 30-year, fixed-rate mortgage fell further in July, dropping to 3.43 percent from 3.57 percent in June. “Global economic uncertainty and negative yields on government bonds overseas continue to drive demand for U.S. Treasuries, including the 10-year Treasury note, driving down yields and keeping mortgage rates low for U.S. consumers for the foreseeable future.”
