First American Financial Corp. today released its monthly Potential Home Sales Model for June 2022. The model measures what the healthy market level of home sales should be based on economic, demographic, and housing-market fundamentals.
Potential existing-home sales decreased to a 5.47 million seasonally adjusted annualized rate, which equated to a 2.5% month-over-month decrease, First American said. This represents a 56.9% increase from the market potential low point reached in February 1993.
The market potential for existing-home sales decreased 13.1% compared with a year ago, a loss of 822,786 sales, it said. Currently, potential existing-home sales is 19.4% below the pre-recession peak of market potential, which occurred in April 2006.
“The market potential for existing-home sales in June was estimated to be 5.47 million at a seasonally adjusted annualized rate, down 2.5% compared to last month, and 13.1% lower than one year ago, which is near the same level as in early 2019,” said Mark Fleming, chief economist at First American.
Flemming said that, according to the most recent data from June 2022, tenure length has increased from 10.4 years to 10.6 years compared with a year ago. “Low mortgage rates discourage existing homeowners from selling because there is no increased house-buying power other than that which comes from household income growth,” he said. “Homeowners staying put reduced market potential by 80,000 potential home sales compared with one year ago.”
First American’s report identified three key boosters to the housing market, including increases in household prices, household formation, and new home supply.
However, declining house-buying power, tighter credit standards, and increasing tenure are factors it identified as reducing the housing market potential.
“Relative to last year, the reduction in demand stemming from falling house-buying power, tighter credit, and homeowners staying put resulted in a significant decline in the market potential for existing-home sales," Fleming said. "Yet, despite these headwinds, market potential is currently near early 2019 levels. Households are continually forming and increasing demand for shelter, existing homeowners have record levels of home equity, and the fear of not being able to find something to buy is easing.”
