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Limited Supply Hinders Market Potential

Navi Persaud
Jul 19, 2021
Photo of a new home.

While housing market potential strengthened in June 2021, the 0.2% increase from May could have been much stronger if not for the limited supply of housing.

KEY TAKEAWAYS
  • Potential home sales are close to 17% higher than the pandemic-driven decline in June 2020.
  • The average length that homeowners are staying in their homes reach a record high.

First American's Potential Home Sales Model reported a 0.2% increase in housing market potential, however, the company notes that limited housing supply is holding back market potential. The report states that homeowners who are choosing to live longer in their homes are keeping the potential housing supply low.

Data from First American's Data and Analytics division reported that the average length of time a homeowner lives in their home reached another historic high in June. As a result, there is an estimated 11,000 fewer potential home sales.

With more folks choosing to stay in their homes rather than sell them, a market that is already plagued by a continuous housing supply shortage is further hindered from its true potential.

“Econ 101 tells us that a decline in supply can result in a market with fewer sales and higher prices, which is exactly what’s happening in the housing market today,” said Mark Fleming, chief economist for First American.

House-buying power took a hit, resulting in 700 fewer potential homes for sale month-over-month, according to the Potential Home Sales Model. However, on a year-over-year basis, house-buying power shot up by 7.2%, with a gain of close to 152,000 potential home sales.

Read more about how limited housing supply is stifling market potential from First American's Potential Home Sales Model.

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