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Is the Housing Market Missing its Fullest Potential?

Phil Hall
Nov 21, 2016
The epicenter of San Francisco’s affordable housing difficulties received an extra helping of bad news

An absence of affordable inventory for first-time homebuyers is preventing the housing market from reaching a higher level of activity and vitality, according to the results of First American Financial Corporation’s proprietary Potential Home Sales model for October.

First American reported potential existing-home sales increased in October to a 5.9 million seasonally adjusted, annualized rate (SAAR), while the market potential for existing-home sales grew by 6.7 percent compared with a year ago, an increase of 376,000 (SAAR) sales.

However, potential existing-home sales is 206,000 (SAAR) or 3.5 percent below the pre-recession peak of market potential, which occurred in July 2005, while the market for existing-home sales is underperforming its potential by 6.5 percent or an estimated 384,000 (SAAR) of sales.

“With mortgage rates still near-historic lows in September, wages growing at a brisker pace, and greater employment, the market potential for existing-home sales grew dramatically,” said Mark Fleming, chief economist at First American. “However, despite the increased consumer house-buying power fueled by lower rates and higher incomes, existing home sales remain below market potential, in part due to tight inventory. The supply of affordable entry-level homes is not keeping up with increasing first-time homebuyer demand. The increasing shortage of affordable inventory for first-time homebuyers is preventing market activity from reaching its true potential.”

Published
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