First American: Market ‘At Potential’ with Low Rates, Job Growth

First American Financial Corp., Santa Ana, Calif., said low mortgage rates, greater employment and rising wages all indicate that the housing market is settling on solid ground.

The company’s Potential Home Sales Model for June showed the market for existing-home sales is underperforming its potential by only 0.3 percent or an estimated 17,000 seasonally adjusted, annualized rate of sales, an improvement over May’s revised performance gap of -3.1 percent or 180,000 sales.

First American Chief Economist Mark Fleming said the market potential for existing home sales grew by 0.19 percent compared to May, an increase of 11,000 sales, and decreased by 5.2 percent compared to a year ago. Gains were once again driven by broad growth across the country, including in the West where sales jumped 5.4 percent on a month-over-month basis. Inventories held steady at an unchanged level between April and May, remaining at a 4.7-month supply, down from a 5.1-month supply a year ago.

“The silver lining for home buyers is that the low interest rate environment continues to absorb some of the impact of rising prices through the benefits of increased leverage and buoyed home-buying power,” Fleming said. “There is little indication mortgage rates will change course and start to rise, even in the face of potential rate hikes from the Federal Reserve later this year. This is due in part to pressure on the 10-year Treasury note, as record levels of both foreign and domestic demand continue to drive down yields. Investors are seeking income as a response to negative yields on bonds in Europe and Asia, as well as safety from global economic uncertainty. This demand for treasuries is not expected to abate soon, which means mortgage rates will likely remain low–good news for the housing market.

Fleming said the strong employment report, in which the Bureau of Labor Statistics reported employers added nearly 300,000 jobs in June, along with higher hourly earnings, also bode well for home sales. “While one month of data does not make a trend, when you consider today’s low mortgage rates, greater employment and rising wages, the housing market is settling on solid ground,” he said.