Household Formation Key Component to Growth in Housing Market Potential, 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 June 2020.

June 2020 Potential Home Sales

• Potential existing-home sales increased to a 4.88 million seasonally adjusted annualized rate (SAAR), a 9.2 percent month-over-month increase.
• This represents a 39.4 percent increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales decreased 2.3 percent compared with a year ago, a loss of nearly 114,000 (SAAR) sales.
• Currently, potential existing-home sales is 2.11 million (SAAR), or 30.2 percent below the pre-recession peak of market potential, which occurred in February 2005.

Market Performance Gap

• The market for existing-home sales outperformed its potential by 3.8 percent or an estimated 186,850 (SAAR) sales.
• The market performance gap decreased by an estimated 442,960 (SAAR) sales between May 2020 and June 2020.

Chief Economist Analysis: Housing Market Potential Recovers Strongly in June, Down 2.3 Percent Year Over Year

“The domestic and global economy continue to feel the pain inflicted by the coronavirus pandemic. Yet the housing industry, at least for now, is bucking the trend,” said Mark Fleming, chief economist at First American. “Weekly purchase applications have surpassed their levels from one year ago for eight straight weeks, as potential buyers respond to record low mortgage rates. The market potential for existing-home sales reflects the accelerated activity, according to our Potential Home Sales Model.

“After hitting a 2020 low point in April, the market potential for existing-home sales increased in May and again in June, reaching a 4.88 million seasonally adjusted annualized rate (SAAR), 9.2 percent better than the May and only 2.3 percent lower than one year ago,” said Fleming. “While the rebound in the potential for existing-home sales is good news, the recent surge in COVID-19 cases has caused many parts of the country to reverse or pause plans to reopen, posing additional risks to the economy and the housing market. Examining the dynamics that influence housing market potential provide insight into health of the housing market.”