First American: Potential Home Sales Market Flat, But Inventory Shows Promise

First American Financial Corp., Santa Ana, Calif., said potential home sale models showed improvement in March, despite tight housing inventories and rising interest rates.

The company’s Potential Home Sales Model for existing home sales held steady in March and rose by 0.6 percent over the past 12 months. First American Chief Economist Mark Fleming said the improved outlook is fueled in part by strong building permit activity and continued employment gains as more people return to the workforce.

“Despite higher mortgage rates, the potential for home sales increased on an annual basis driven by steady income and job growth, along with a surge in building permits,” Fleming said. “While it may be a little late for this spring, the increase in building permits is a welcome sign that some relief may be in sight for the inventory shortages that are holding back many markets from realizing their full potential this spring.”

Fleming said strong consumer demand combined with continued healthy wage growth, which increased 2.7 percent over the past 12 months, continues to support a positive outlook for the spring home buying market.

Other report highlights:

–Potential existing home sales decreased to a 5.5 million seasonally adjusted, annualized rate, a 1.5 percent month-over-month decline compared to February but an 83.3 percent increase from the market potential low point reached in December 2008.

–The market potential for existing home sales grew by 0.6 percent compared to a year ago, an increase of 31,000 sales, seasonally adjusted.

–Currently, potential existing home sales is 853,000, or 15.5 percent below the pre-recession peak of market potential, which occurred in July 2005.

–The market for existing home sales is underperforming its potential by 2.3 percent or an estimated 129,000 sales.

–Market underperformance has improved 47 percent from a year ago. In March 2016, the housing market for existing home sales was underperforming its potential by 275,000 sales.

Fleming noted upward pressure on house prices persists, as current homeowners remain reluctant to list their homes for sale out of concern they will not be able to find a home to buy.

“While affordability declined slightly in January, it is not affecting consumer demand. Rather, in the fourth quarter of 2016 owner-occupied home sales increased the fastest outside the top 25 largest markets, as first-time homebuyers are pursuing home purchases in less expensive markets,” Fleming said.