Rising Rates Unlikely to Dampen Spring Home-Buying Season, 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 February 2021.
February 2021 Potential Home Sales
- Potential existing-home sales increased to a 6.26 million seasonally adjusted annualized rate (SAAR), a 1.3 percent month-over-month increase.
- This represents a 79.6 percent increase from the market potential low point reached in February 1993.
- The market potential for existing-home sales increased 12.2 percent compared with a year ago, a gain of 682,900 (SAAR) sales.
- Currently, potential existing-home sales is 530,350 million (SAAR), or 7.8 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 3.9 percent or an estimated 243,600 (SAAR) sales.
- The market performance gap increased by an estimated 99,000 (SAAR) sales between January 2021 and February 2021.
Chief Economist Analysis: Housing Market Potential Soars to Highest Level Since 2007
“In February 2021, housing market potential increased to its highest level since 2007, despite the largest month-over-month jump in mortgage rates since October 2019. Housing market potential rose 1.3 percent in February relative to the previous month, and 12.2 percent year-over-year,” said Mark Fleming, chief economist at First American. “While rising average tenure length was the largest drag on housing market potential this month, the lift from still rising house-buying power, looser credit standards, and strong household formation outpaced the negative impact from limited supply, both new and existing. As we enter the spring-home buying season, these dynamics are poised to support continued strength in the housing market.”
The Good: Millennials Reach Peak Home-Buying Age Armed with Record House-Buying Power
- Demographics: “While mortgage rates increased by a modest 0.08 percentage points in February, house-buying power was modestly higher this month thanks to a rise in median household income. Yet, larger gains in market potential came from household formation. The month-over-month growth in household formation contributed to nearly 13,000 potential home sales,” said Fleming. “Buying a home is not just a financial choice, but also a lifestyle choice. Millennials are reaching their peak home-buying years in large numbers and have likely been considering buying a home for some time. A slight increase in rates may cause some millennials to adjust their price point, but it will not necessarily deter them from home buying.”
The Bad: You Can’t Buy What’s Not for Sale