Housing Market ‘Near Potential,’ Save Inventory

Home sales have surged in recent months and significantly narrowed the gap between actual market performance and market potential, said First American Financial Corp., Santa Ana, Calif.

The company’s Potential Home Sales Model for December said potential existing home sales decreased to a 5.99 million seasonally adjusted annualized rate, a 0.2 percent month-over-month decrease. This represents a 99.2 percent increase from the market potential low point reached in December 2008.

The report said the market potential for existing home sales increased by 1.4 percent compared to a year ago, a gain of 82,000 sales.

First American Chief Economist Mark Fleming said currently, potential existing-home sales is 375,000, or 6.3 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 2.0 percent, or an estimated 122,000 sales. Market potential decreased by an estimated 1,000 sales between November and December.

“Faster economic growth, a healthy stock market, low unemployment and low mortgage rates are fueling substantial home-buying demand,” Fleming said. “The pace of actual existing home sales has surged in recent months and significantly narrowed the gap between actual market performance and market potential. Nonetheless, the market is still underperforming its potential.”

Fleming said existing home sales have been restrained by an increasingly concerning shortage of properties for sale, which puts upward pressure on house prices. “The shortage of homes for sale will likely continue in 2018 and continue to push prices higher.”

Fleming noted as millennial demand continues to strengthen in 2018, new home building and sales listings for existing homes will struggle to keep up. “The pace of new homebuilding faces headwinds,” he said. “At the same time, the fear of not being able to find a home to buy is preventing homeowners from putting their homes on the market, as more homeowners are increasingly prisoners in their own homes.”