Potential Existing-Home Sales Take a Tumble

Potential existing-home sales decreased to a 5.8 million seasonally adjusted, annualized rate (SAAR) last month, according to data from First American Financial Corporation, while the market potential for existing-home sales grew by 2.9 percent compared with a year ago, an increase of 164,000 (SAAR) sales. Last month’s figures represented a 92.5 percent increase from the market potential low point reached in December 2008.

First American reported that the 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. Mark Fleming, chief economist at First American, warned that the market is not without lingering problems.

“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,” Fleming said. “However, the market continues to underperform its potential due to the highly limited inventory. 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.”