Housing Market Potential Narrows Performance Gap in April, According to First American Potential Home Sales Model

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released First American’s proprietary Potential Home Sales Model for the month of April 2019.

April 2019 Potential Home Sales

• Potential existing-home sales increased marginally to a 5.17 million seasonally adjusted annualized rate (SAAR), a 0.1 percent month-over-month increase.
• This represents a 54.1 percent increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales declined by 1.3 percent compared with a year ago, a loss of 68,600 (SAAR) sales.
• Currently, potential existing-home sales is 1.56 million (SAAR), or 23.2 percent below the pre-recession peak of market potential, which occurred in March 2004.

Market Performance Gap

• The market for existing-home sales is underperforming its potential by 1.3 percent or an estimated 68,000 (SAAR) sales.
• The market performance gap decreased by an estimated 37,000 (SAAR) sales between March 2019 and April 2019.

Chief Economist Analysis: Why Did Housing Market Potential Improve in April?

“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 percent 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).

“Lower mortgage rates in April loosened the 'rate lock-in effect' that has created a financial disincentive that prevents many existing homeowners from selling their homes. However, it was not enough to reduce the average tenure length, the amount of time a typical homeowner lives in their home, which has increased dramatically in the last year,” said Fleming. “Since existing homeowners supply the majority of the homes for sale and increasing tenure length indicates homeowners remain hesitant to sell, the housing market faces an ongoing supply shortage – you can’t buy what’s not for sale.