SANTA ANA, Calif .– (COMMERCIAL THREAD) –America’s leading financial company (NYSE: FAF), one of the world’s leading providers of title insurance, settlement services and risk management solutions for real estate transactions, today released First American’s exclusive home sales potential sales model for the month of October 2021. The potential home sales model measures what the healthy level of the home sales market is expected to be. based on economic, demographic and housing market fundamentals.
October 2021 Potential home sales
For the month of October, First American updated its exclusive model of potential home sales to show that:
Potential existing home sales increased at a seasonally adjusted annualized rate (SAAR) of 6.27 million, a 0.1% month-over-month increase.
This represents an increase of 79.8 percent from the potential market low reached in February 1993.
The market potential for existing home sales increased 10.3% from a year ago, representing a gain of nearly 584,000 sales (SAAR).
Currently, potential sales of existing homes are 522,000 million (SAAR), 7.7% below the peak of pre-recession market potential, which occurred in April 2006.
Market performance gap
The existing home sales market exceeded its potential by 8.4%, or about 525,000 sales (SAAR).
The market performance gap increased by approximately 52,000 sales (SAAR) between September 2021 and October 2021.
Chief Economist’s Analysis: What Housing Market Dynamics in 2021 Show for Next Year
“In September 2021, sales of existing homes increased to 6.29 million seasonally adjusted annualized rate (SAAR). Before the pandemic, the housing market had not reached this sales pace since 2006, ”said Mark Fleming, chief economist at First American. “We could see another strong month in October, as the housing market potential increased 10.3% from a year ago to 6.27 million (SAAR), according to our measure of the housing market potential. sales of existing homes.
“As the final weeks of the year approach, it’s important to think about how the housing market is performing,” Fleming said. “Analyzing the individual economic forces that have driven the continued growth in the market potential for existing home sales can provide insight into how the housing market might perform in 2022.”
Why the potential of the housing market continues to increase
- Relaxed credit standards: “When lending standards are tight, fewer people can qualify for a mortgage to buy a home, so they’re more likely to stay in their current home, which limits the supply of homes for sale. When the pandemic hit, lenders tightened their lending criteria to account for the greater likelihood of forbearance and delinquency, ”Fleming said. “Since the peak of the pandemic in the spring of 2020, lending standards have rebounded but, ultimately, shifted towards more flexible terms. In October, credit eased from a year ago as the economy continued to improve and lender confidence strengthened. The easing of credit conditions increased the potential of the housing market by about 331,000 potential home sales compared to a year ago.
- Appreciation of the price of the historic house: “As homeowners gain equity in their home, they may be more likely to consider using the equity to buy a larger or more attractive home,” Fleming said. “The historic imbalance of housing supply relative to demand over the past year has resulted in more rapid appreciation of house prices, which has increased the potential of the housing market by nearly 223,000 potential sales of housing in October compared to a year ago. ”
- Growth in household formation continued: “Household formation has continued to grow over the past year, thanks in large part to millennials, accelerating the demand for housing,” said Fleming. “The increase in household formation improved the market potential of almost 134,000 potential home sales in October compared to a year ago.”
- The purchasing power of a house has increased modestly: “The purchasing power of a house, the quantity of house that one can afford to buy given household income and the prevailing mortgage rate, has increased by 0.6% compared to it. a year ago. The modest increase in a home’s purchasing power was due to the 3.6% year-over-year increase in household income, ”Fleming said. “Rates pushed back as the 30-year average fixed mortgage rate in October 2021 was 0.23 percentage points higher than a year ago. The increased purchasing power of homes has boosted the market potential of 12,000 potential home sales.
The only economic force that has reduced the potential of the housing market
- Lack of supply of existing houses: “The average lifespan of a person in their home continues to break new records, reaching around 10.7 years in October, compared to 10.4 years a year ago. The longer people live in their homes means fewer and fewer people are listing their homes, making the housing shortage worse – you can’t buy what isn’t for sale, and you won’t sell if you can’t find something better to buy, ”Fleming said. “The increase in the average lifespan of a person in their home had the only negative impact on the potential of the housing market compared to a year ago, reducing it by 116,000 potential home sales. The lack of supply is the main constraint on the housing market.
What does this mean for the market potential in 2022?
“In 2022, the average lifespan of a person in their home looks set to increase again, especially as mortgage rates rise, which will prolong the housing shortage and reduce the potential of the housing market. lodging. The recovery in the labor market is expected to continue, exerting upward pressure on wages, boosting consumers’ housing purchasing power. Yet the improving economy is also likely to put upward pressure on mortgage rates, ”Fleming said. “The winner of the tug-of-war between rising rates and increasing household incomes will determine the direction of purchasing power of housing. But, even if the rate hike outweighs the impact of higher incomes, buying a home is more than a financial math. Millennials are generally expected to continue forming households, which in turn drives demand for housing. Strong demographic demand will continue to act like the wind in the sails of the real estate market.
The next potential home sales model will be released on December 21, 2021 with data for November 2021.
About the Potential Home Sales Model
Potential home sales measures existing home sales, which include single-family homes, townhouses, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing home sales and population demographics. US population, purchasing power in the US economy, price trends in the US real estate market, and financial market conditions. When the actual level of existing home sales is significantly higher than potential home sales, the pace of sales is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, annualized and seasonally adjusted rates of actual sales of existing homes below the level of potential sales of existing homes indicate that market turnover is below the rate fundamentally supported by current conditions. Seasonally adjusted, annualized existing home sales may exceed or fall below the potential sale rate for a variety of reasons, including non-traditional market conditions, political constraints, and the behavior of market participants. Recent estimates of potential home sales are subject to revision to reflect the most recent information available on the economy, housing market and financial conditions. The Potential Home Sales Model is released each month before the National Association of Realtors Existing Home Sales Report.
The opinions, estimates, forecasts and other views contained on this page are those of the Chief Economist of First American, 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 and useful information, they do not guarantee that the information is accurate, up to date, or fit for a particular purpose. © 2021 by First American. The information on this page can be used with appropriate attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk management solutions for real estate transactions with a heritage dating back to 1889. First American also provides title factory management services; title and other records and images of real estate; assessment products and services; home warranty products; banking, trust and wealth management services; and other related products and services. With total sales of $ 7.1 billion in 2020, the company offers its products and services directly and through its agents in the United States and abroad. In 2021, First American was appointed to Fortune 100 best companies to work for® list for the sixth consecutive year. You can find more information about the company at www.firstam.com.