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First American Financial Corporation's Potential Home Sales Model for the month of March 2021 reported that potential existing-home sales decreased to a 6.26 million seasonally adjusted annualized rate, slightly down month-over-month.
"After hitting its highest point since 2007 last month, housing market potential fell modestly in March, according to our Potential Home Sales Model. Housing market potential remains near the 13-year high point, but the severely limited supply of homes for sale and an uptick in mortgage rates pulled market potential for existing-home sales off its February peak," said Mark Fleming, chief economist at First American, according to the report. "Annual comparisons of housing market potential will be very large for the next few months, as the housing market came to a halt last year at this time when the pandemic shut down the economy. However, housing market potential is 16.5% higher than two years ago and will remain strong due to a demographic-fueled shift away from renting to homeowning driven by millennials aging into homeownership and accelerated by still low mortgage rates."
According to the report, the market potential for existing-home sales increased 23.6% compared with a year ago, a gain of 1,197,267 (SAAR) sales. FAFC expects year-over-year comparisons to be very large in the months to come, as the housing market came to a halt last year at this time when the pandemic shut down the economy. Housing rebounded sharply in the summer.
Fleming also explored how an increase in mortgage rates for the month of March influenced house-buying power on a national level.
"On a month-over-month basis, mortgage rates increased by the greatest amount since February 2018, contributing to a $13,000 decline in house-buying power nationally. Historically and relative to one year ago, mortgage rates remain low," said Fleming. "Yet, for homeowners who locked in rates below 3%, modestly higher rates in a historically low inventory environment may disincentivize some from selling their homes thus preventing more supply from reaching the market. In March, the dip in house-buying power resulted in a decline of 55,600 potential home sales."
The report continues to stress the issue of limited housing supply that is making it difficult for folks to "move out or move up."
"Existing homeowners today are sitting on record amounts of equity, which could be used to move out and move up. Rising house appreciation contributed to a gain of approximately 33,300 potential home sales in March. However, while many homeowners may want to use their equity to buy something bigger and better, they first must find something to buy," said Fleming. "The fear of not finding something to buy in an environment of historically low inventory is one reason tenure length reached a high of just over 10.5 years. In March, homeowners staying put and a lack of new construction collectively contributed to a loss of just over 6,100 potential home sales."
While housing inventory continues to be a hurdle for many folks to overcome, Fleming still expects a hot spring housing market as the rapid jump in sales and prices points to a lack of supply rather than a lack of demand.
Click here to read more from the report.