Hesitant Homeowners and Hurricanes Hit Housing Market, According to First American Potential Home Sales Model

Existing homeowners reluctant to sell and hurricane-related disruption are dampening existing-home sales, says Chief Economist Mark Fleming


October 20, 2017, Santa Ana, Calif.

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released First American’s proprietary Potential Home Sales model for the month of September 2017.

September 2017 Potential Home Sales

  • Potential existing-home sales increased to a 5.84 million seasonally adjusted, annualized rate (SAAR), a 0.3 percent month-over-month increase.
  • This represents a 94.4 percent increase from the market potential low point reached in December 2008.
  • In September, the market potential for existing-home sales decreased by 5.0 percent compared with a year ago, a loss of 307,000 (SAAR) sales.
  • Currently, potential existing-home sales is 521,000 (SAAR), or 8.9 percent, below the pre-recession peak of market potential, which occurred in July 2005.

Market Performance Gap

  • The market for existing-home sales is underperforming its potential by 7.8 percent or an estimated 453,000, (SAAR) sales.
  • Market potential increased by an estimated 16,000 (SAAR) sales between August 2017 and September 2017.

Chief Economist Analysis: Hurricanes and Tight Inventory Mean Lower Sales in the Short Run

“Existing home sales as reported by the National Association of Realtors remain below potential due to supply constraints caused by existing homeowners' reluctance to list their homes for sale for fear of not being able to find a home to buy,” said Mark Fleming, chief economist at First American. “Additionally, Hurricanes Irma and Harvey may negatively impact actual existing-home sales regionally, but only temporarily. Based on data from previous natural disasters, home buying usually rebounds as households recover from the disruption of natural disasters.”

Additional Quotes from Chief Economist Mark Fleming

  • “The housing markets’ potential for existing-home sales increased moderately, between August 2017 and September 2017, as mortgage rates remained below 4 percent.”
  • “The year-over-year decline in the number of existing-home sales, a function of tight supply, resulted in a wider market performance gap in September 2017 compared to August 2017. The number of homes for sale has declined year-over-year for the past 28 months, and has fallen 6.4 percent over the past 12 months, according to the National Association of Realtors (NAR).”
  • “Since 2009, based on our analysis of Census Bureau and Department of Housing and Urban Development (HUD) data, the number of new households has increased by 5.9 million, while the net new number of housing units (single and multifamily) has only increased by 3.5 million, meaning there is a shortage of 2.4 million housing units in the United States.”
  • “The lack of inventory relative to demand, combined with limited new supply is driving the fast pace of price appreciation. When combined with decreasing consumer home purchasing power as mortgage rates increase, affordability is declining.”
  • “According to the First American Real House Price Index, affordability is down 10.4 percent in July compared to a year ago, but remains affordable by historic measures.”

What Insight Does the Potential Home Sales Model Reveal?

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our potential home sales model measures what home sales should be based on the economic, demographic, and housing market environments.”

Next Release

The next Potential Home Sales model will be released on November 20, 2017 with October 2017 data.

About the Potential Home Sales Model

Background information on the First American Potential Home Sales model is available here.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2017 by First American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With total revenue of $5.6 billion in 2016, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016 and again in 2017, First American was named to the Fortune 100 Best Companies to Work For® list. More information about the company can be found at www.firstam.com.

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