First American’s Potential Home Sales Model for March shows that potential existing-home sales decreased to a 4.94 million seasonally adjusted annualized rate, representing a 9 percent month-over-month decrease.
This figure represents a 47.1 percent increase from the market potential low point reached in February 1993.
Compared to a year ago, the market potential for existing-home sales decreased 7.5 percent: a loss of nearly 400,000 sales.
The company notes that, currently, potential existing-home sales totals 1.8 million, which is 26.6 percent below the pre-recession peak of market potential, which occurred in March 2004.
In March, the market for existing-home sales outperformed its potential by 13.7 percent, or an estimated 678,500 sales. The market performance gap increased by an estimated 565,800 sales between February 2020 and March 2020.
Mark Fleming, chief economist at First American, notes that the effects of the coronavirus pandemic can be seen in the company’s Potential Home Sales Model.
“Market potential fell in March, as lenders tightened credit due to concern that many economically impacted households will not be able to make their mortgage payments,” Fleming says. “In March, the market potential for existing-home sales dropped to its lowest level since February 2016.”
Going forward, the landscape will be a bit uncertain.
“While income growth may slow, we expect mortgage rates to remain low,” Fleming explains. “Even with a continued boost in house-buying power, tighter lending standards will make it harder for some borrowers to leverage the market’s low mortgage rates. The contraction in credit availability reduces demand. The immediate impact of the coronavirus pandemic on the housing market will be a reduction in spring sales activity and a moderation of price appreciation.”