First American: Fallout from Harvey to be ‘Considerable’

Housing inventories, already low enough to have a significant impact on home prices and home sales, could take a “considerable” hit in the wakes of Hurricanes Harvey and Irma, said First American Financial Corp., Irvine, Calif.

The company’s Potential Home Sales model said potential existing home sales decreased to a 5.71 million seasonally adjusted, a 1.3 percent month-over-month decrease. The market potential for existing-home sales decreased by 3.7 percent compared with a year ago, a loss of 221,000. Currently, potential existing home sales is 656,000 (SAAR), or 11.5 percent below the pre-recession peak of market potential in July 2005.

First American Chief Economist Mark Fleming said the market for existing home sales is underperforming its potential by 3.6 percent or an estimated 206,000 sales. Market potential fell by an estimated 72,000 sales between July and August.

“While, the full scope of the damage from hurricanes Harvey and Irma is still being assessed, it is clear the impact on the housing market will be considerable,” Fleming said. “The Houston metropolitan area and the impacted Florida counties alone accounted for 8.0 percent of all U.S. existing home sales in 2016.”

Fleming said he expects existing home sales to decrease in the short-run, as loan closings are rescheduled and some borrowers with pending contracts withdraw their bids on damaged homes. “As recovery efforts move forward, the pre-hurricane shortage of construction workers will likely hamper the process of rebuilding efforts and further limit the pace of new home construction, as the limited labor supply shifts away from new home construction to rebuilding efforts,” he said.

The National Association of Realtors this month reported existing homes listed for sale fell for the 27th consecutive month, falling by 9.0 percent over the past 12 months. The combination of home price appreciation driven by inventory shortages and the rise in mortgage rates over the prior year has had a meaningful impact on affordability. According to the First American Real House Price Index, affordability is down 9.3 percent in July compared to a year ago.