Housing Market Potential Poised for Growth, 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 January 2021.
January 2021 Potential Home Sales
- Potential existing-home sales increased to a 6.17 million seasonally adjusted annualized rate (SAAR), a 0.4 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 9.0 percent compared with a year ago, a gain of 512,083 (SAAR) sales.
- Currently, potential existing-home sales is 712,052 million (SAAR), or 10.3 percent below the pre-recession peak of market potential, which occurred in April 2006.
Market Performance Gap
- The market for existing-home sales outperformed its potential by 3.0 percent or an estimated 183,790 (SAAR) sales.
- The market performance gap increased by an estimated 136,731 (SAAR) sales between December 2020 and January 2021.
Chief Economist Analysis: Housing Demand Dynamics Offset Negative Impact of Limited Housing Supply
“At the onset of 2021, positive housing market dynamics powered growth in the market potential for existing-home sales, offsetting negative market supply dynamics. Millions more millennials will age into their prime home-buying age in 2021, and they will do so at a time of historically low mortgage rates,” said Odeta Kushi, deputy chief economist at First American. “Working against them is the extremely limited supply of existing homes available for sale, especially homes priced for first-time home buyers. In January, the positives of market demand overcame the negatives of supply, fueling a boost of approximately 512,000 potential home sales relative to one year ago.”
Historically Low Rates and Wage Growth Boost Affordability
“Soaring house-buying power, how much home one can afford to buy given household income and the prevailing mortgage rate, fueled the bulk of the increase in housing market potential compared with one year ago. In January, the 30-year, fixed-rate mortgage declined to 2.7 percent, 0.9 percentage points lower than one year ago,” said Kushi. “At the same time, for those still employed, wages continued to grow. The low mortgage rates and income growth spurred an 18.9 percent increase in house-buying power compared with a year ago, boosting market potential by 363,000 potential home sales.”