Housing Supply Limiting 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 2021.

June 2021 Potential Home Sales

• Potential existing-home sales increased to a 6.34 million seasonally adjusted annualized rate (SAAR), a 0.2 percent month-over-month increase.
• This represents an 81.9 percent increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales increased 17.0 percent compared with a year ago, a gain of 922,000 (SAAR) sales. The year-over-year comparison is large this month because economic activity in June of 2020, including the housing market, was significantly curtailed due to the pandemic. Housing rebounded sharply in the summer.
• Currently, potential existing-home sales is 447,354 (SAAR), or 6.6 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 5.8 percent or an estimated 366,184 (SAAR) sales.
• The market performance gap increased by an estimated 118,285 (SAAR) sales between May 2021 and June 2021.

Chief Economist Analysis: Housing Market Potential Up Slightly Month Over Month

“Housing market potential strengthened modestly in June, increasing 0.2 percent compared with May, according to our Potential Home Sales Model,” said Mark Fleming, chief economist at First American. “Potential home sales are nearly 17 percent higher than the pandemic-driven decline last June.

“While actual existing-home sales have declined for four months in a row, the market potential for existing-home sales has increased. Potential home sales measures what a healthy level of home sales should be based on current economic, demographic and housing market trends. Comparing housing market potential at different points in time provides insight into how market fundamentals may have changed,” said Fleming. “In June, for example, the positive market fundamentals driving higher potential home sales offset the negative fundamentals reducing potential home sales on a month-over-month and year-over-year basis. Understanding the shifts in these fundamental forces can help determine whether downward pressure on home sales is due to a demand pullback or a lack of supply. Based on this month’s analysis, actual existing-home sales are moderating primarily due to a lack of supply.”