Lack of Housing Supply Still Creating Downward Pressure

First American’s proprietary Potential Home Sales model for the month of July 2017 shows that a lack of supply “continues to be the main story of the 2017 housing market.”

“Just a few months ago, the difference between the actual level of existing-home sales and the market’s potential was negligible, but supply issues have become a significant impediment and are preventing the market from reaching its potential,” says Mark Fleming, chief economist at First American.

Potential existing-home sales increased to a 5.82 million seasonally adjusted, annualized rate (SAAR), a 0.2% month-over-month increase. This represents a 93.75 increase from the market potential low point, which was reached in December 2008.

In July, the market potential for existing-home sales increased by 0.1% compared with a year ago – a gain of 6,000 (SAAR) sales. Currently, potential existing-home sales is 541,000 (SAAR), or 9.3% below the pre-recession peak of market potential, which occurred in July 2005.

The market for existing-home sales is underperforming its potential by 4.7%, or an estimated 273,000 (SAAR) sales. Market potential grew by an estimated 10,000 (SAAR) sales between June 2017 and July 2017.

“The housing market’s potential for existing-home sales improved slightly, growing 0.2 percent between June 2017 and July 2017, as the rate for a 30-year, fixed-rate mortgage remained little changed at 4.0 percent,” Fleming adds.

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand,” he explains. “Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time.”


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