Housing Market Potential Expected to Build on Momentum in 2021, 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 December 2020.

December 2020 Potential Home Sales

• Potential existing-home sales increased to a 6.18 million seasonally adjusted annualized rate (SAAR), a 2.3 percent month-over-month increase.
• This represents a 77.1 percent increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales increased 11.9 percent compared with a year ago, a gain of nearly 658,628 (SAAR) sales.
• Currently, potential existing-home sales is 683,971 million (SAAR), or 10.0 percent below the pre-recession peak of market potential, which occurred in April 2006.

Market Performance Gap

• The market for existing-home sales underperformed its potential by 1.2 percent or an estimated 73,142 (SAAR) sales.
• The market performance gap increased by an estimated 21,960 (SAAR) sales between November 2020 and December 2020.

Chief Economist Analysis: Housing Market Potential Reached Highest Point Since 2007

“In the final month of 2020, the market potential for existing-home sales reached its highest point since 2007, rising to a 6.18 million seasonally adjusted annualized rate (SAAR) of sales,” said Mark Fleming, chief economist at First American. “While the winter months are traditionally real estate’s slow season, the housing market had one more surprise for us in 2020, as our measure of the market potential for existing-home sales showed the housing market again broke with traditional seasonal patterns during this unprecedented year.

“Twin housing market accelerants -- record low mortgage rates and the demographic boost from millennials, the largest generation in U.S. history, aging into their prime homebuying years – super-charged demand. Yet, the housing market also faces a historic and worsening inventory impasse - you can’t buy what’s not for sale,” said Fleming. “In 2020, the growth in house-buying power fueled by low mortgage rates was the primary driver of housing market potential, while existing homeowners choosing not to list their homes for sale was the biggest headwind. Fortunately, the potential sales increase from house-buying power was more than the loss from rising tenure length in 2020.”