Skip to main content

Market Potential Dwindling From Recent Highs

Sarah Wolak
Jul 20, 2022
First American Financial Corporation New Logo.

As the market adjusts to a post-pandemic norm with higher mortgage rates, housing market potential will subside from recent highs, according to First American.

KEY TAKEAWAYS
  • Potential existing-home sales decreased to a 5.47 million seasonally adjusted annualized rate, which equated to a 2.5% month-over-month slope.
  • Declining house-buying power, tighter credit standards, and increasing tenure are all factors identified by First American that are reducing the housing market potential. 

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.”

Published
Jul 20, 2022
Mortgage Rates Spike For 6th Straight Week

Freddie Mac survey finds 30-year fixed-rate mortgages now average 6.7%, more than double the rate at this point last year.

Analysis and Data
Sep 29, 2022
Zillow Panelists Predict A Buyers Market By End Of 2023

A panel of 107 housing market experts and economists predicted rent growth and inflation to outpace home appreciation.

Analysis and Data
Sep 29, 2022
Appraisers Share Biggest Challenges In Recent NAR Survey

Lack of inventory, declining housing affordability cited most often.

Analysis and Data
Sep 28, 2022
NAR: Pending Home Sales Fall For 3rd Straight Month

Index fell 2% in August from July, and is down 24.2% year over year.

Analysis and Data
Sep 28, 2022
Homebuyers Challenged By Mortgage Rate 'Whiplash'

Redfin says a house hunter looking for a $500,000 home saw their potential total mortgage payment decrease $64,000 from July to August, but jump up $118,000 from August to September.

Analysis and Data
Sep 28, 2022
Mortgage Applications Follow 1st Weekly Increase With Similar Decline

After rising nearly 4% the previous week, applications fell nearly 4% last week as interest rates rose.

Analysis and Data
Sep 28, 2022