Despite some positives the US housing market is underperforming

by Steve Randall21 May 2019

US home sales failed to reach their potential again in April as homeowners remained reluctant to sell.

The trend of homeowners staying on the sidelines remains even as  lower mortgage rates provide a greater incentive for them to make a move, having been ‘locked in’ by fear or higher rates; and means that the market is still not reaching its potential according to title insurance and real estate firm First American.

“The housing market continued to underperform its potential in April 2019, but the performance gap shrank compared with March. Actual existing-home sales remain 1.3% below the market’s potential, but the performance gap narrowed from 2.0 percent last month, according to our Potential Home Sales model,” said Mark Fleming, chief economist at First American. “That means the housing market has the potential to support 68,000 more home sales at a seasonally adjusted annualized rate (SAAR).”

Potential existing-home sales increased marginally to a 5.17 million seasonally adjusted annualized rate (SAAR), a 0.1% month-over-month increase.

Although there was new supply created by construction, it was not enough to meet demand, but lower rates, rising wages, and a larger volume of millennial buyers, increased the market potential month-over-month.

Meanwhile, homeowners held firm.

“The most recent data shows that the average length of time someone lives in their home reached 11 years in April 2019, a 9% increase compared with a year ago. Increased tenure length reduced the market potential by 33,000 sales compared with last month,” said Fleming.

Increased house-buying power

“With more income and lower mortgage rates, comes greater house-buying power,” added Fleming. “The increase in house-buying power increased market potential by 50,000 sales, compared with the previous month, by far the strongest driver of market potential in our model.”

Fleming says that if mortgage rates continue lower then there should be a rise in homeowners willing to sell.

“In April, lower mortgage rates helped close the performance gap between the market’s potential and actual existing-home sales. The keys to closing the performance gap lie in where mortgage rates go from here and how existing homeowners resolve the dilemma to sell or not to sell,” concluded Fleming.


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