SANTA ANA, Calif.--(BUSINESS WIRE)--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 November 2016.
December 2016 Potential Home Sales
- Potential existing-home sales decreased to a 5.8 million seasonally adjusted, annualized rate (SAAR).
- This represents a 92.5 percent increase from the market potential low point reached in December 2008.
- In December, the market potential for existing-home sales grew by 2.9 percent compared with a year ago, an increase of 164,000 (SAAR) sales.
- Currently, potential existing-home sales is 432,000 (SAAR) or 7.5 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 2.2 percent or an estimated 129,000 (SAAR) of sales.
- Last month’s revised underperformance gap was -6.2 percent or 370,000 (SAAR) sales.
Chief Economist Analysis: Rising Mortgage Rates Lower Market Potential, But Constrained Supply is Driving Price Appreciation
“The market potential for existing-home sales fell 3.1 percent between November and December due to the post-election rate increase, offsetting increased demand caused by the strength of the broader economy, particularly wage growth and improving access to credit. However, the market continues to underperform its potential due to the highly limited inventory,” said Mark Fleming, chief economist at First American. “While low inventories are still responsible for higher prices, I expect the impact of the increasing mortgage rates will cause a modest cooling in house price growth in 2017.”
Additional Quotes from Chief Economist Mark Fleming
- “According to the National Association of Realtors, existing-home sales grew 0.7 percent between October and November to 5.6 million (SAAR). The increase was driven mainly by an increase in sales activity in the Northeast, which grew by 8.0 percent over the course of the month.”
- “As I highlighted last month, the post-election increase in mortgage rates is contributing to the slower growth in sales activity. However, the most significant influence on sales is the lack of homes listed for sale, particularly entry-level homes. The supply of homes for sale has declined for 18 consecutive months, falling to 4.0 months in November – a level not seen since the mid-2000s.”
- “Home price appreciation is typically more sensitive to mortgage rate increases. Rising rates may slow the house price growth rate by as much as 2 percent by the end of 2017.”
- “The low inventory of homes for sale continues to be a concern, as it is putting upward pressure on house prices and could counteract the downward price pressure caused by higher mortgage rates.”
- “One thing to watch for in 2017 is evidence of a ‘lockout effect,’ where homeowners are hesitant to sell their home if their mortgage rate is lower than the current market rate.”
- “Even though rising rates reduce affordability for potential first-time homebuyers, the expected moderation of price appreciation will align house price growth more closely with recently increasing income growth to help offset reduced affordability.”
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 we believe a healthy market level of home sales should be based on the economic, demographic, and housing market environments.”
The next Potential Home Sales model will be released on February 21, 2017 with January 2017 data.
About the Potential Home Sales Model
Background information on the First American Potential Home Sales model is available here.
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. © 2016 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 revenues of $5.2 billion in 2015, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was recognized by Fortune® magazine as one of the 100 best companies to work for in America. More information about the company can be found at www.firstam.com.