Market is Missing Its Potential Due to Tight Supply, According to First American Chief Economist’s Potential
Home Sales Model
—Extremely limited supply is stopping the market from reaching its full potential, counteracting
positive increases in market fundamentals, such as employment and wages, says Chief Economist Mark Fleming—
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 September 2016.
This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20161018005522/en/
First American's proprietary Potential Home Sales Model infographic for September 2016 data. (Graphic: Business
Wire)
September 2016 Potential Home Sales
- Potential existing-home sales increased to a 5.8 million seasonally adjusted, annualized rate
(SAAR).
- This represents a 92.6 percent increase from the market potential low point reached in December
2008.
- In September, the market potential for existing-home sales grew by 6.5 percent compared with a year
ago, an increase of 352,000 (SAAR) sales.
- Currently, potential existing-home sales is 351,000 (SAAR) or 6.0 percent below the pre-recession
peak of market potential, which occurred in July 2005.
Market Performance Gap
- The market for existing-home sales is underperforming its potential by 6.5 percent or an estimated
375,000 (SAAR) of sales.
- Last month’s revised performance gap was -6.3 percent or 365,000 (SAAR) sales.
Chief Economist Analysis: Low Inventories Restricting Sales and Driving Price Growth, But Buying Power Remains Strong
“Current mortgage rates hovering near historic lows combined with increases in wages remain the key drivers to growth in the
housing market, as they continue to soften the impact of rising prices and offer consumers increased leverage and buoyed home-buying power. While this is contributing to greater consumer confidence in
the housing market and providing a firm foundation for increased housing demand, tight inventory, particularly in the lower-priced
segments, is keeping market activity from reaching its true potential,” said Mark Fleming, chief economist at First American.
Additional Quotes from Chief Economist Mark Fleming
- “According to the National Association of Realtors, existing-home sales fell 0.9 percent between July
and August to 5.33 million (SAAR). The decline in sales was concentrated in starter homes (homes under $100,000), which declined
by 4.4 percent year-over-year, while all other home price ranges experienced increases.”
- “Tight inventories continue to be a drag on the housing market which dropped to a 4.6-month supply in
August. This put upward pressure on prices, which rose 5.7 percent over the past 12 months.”
- “Incomes continue to trend upward with the Census Bureau reporting that average hourly earnings have
increased 2.6 percent in the past year, coinciding with a boost in consumer confidence.”
- “The unemployment rate ticked upward 0.1 percent between August and September to 5.0 percent, due to
an increase in the number of people trying to re-enter the workforce after spending an extended period of time unemployed.”
- “Mortgage rates ticked up slightly to 3.46 percent, a rise of 0.02 percent between August and
September.”
What insight does the Potential Home Sales model reveal?
“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. 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,” said Fleming. “Historical context is critically important. Our potential home sales model measures what we believe
a healthy market level of home sales should be based on the economic, demographic, and housing market environments.”
*Previous Potential Home Sales releases referred to February 2009 as the low point of sales. The model used to generate
existing-home sales potential has been updated with more recent data to more accurately reflect the dynamic relationships between
sales, prices, interest rates and the user-cost of housing, resulting in a model that more accurately reflects past conditions.
Next Release
The next Potential Home Sales model will be released on November 21, 2016 with October 2016 data.
About the Potential Home Sales Model
Background information on the First American Potential Home Sales model is available here.
Disclaimer
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not
necessarily represent the views of First American or its management, should not be construed as indicating First American’s
business prospects or expected results, and are subject to change without notice. Although the First American Economics team
attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for
any particular purpose. © 2016 by First American. Information from this page may be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk
solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management
services; title and other real property records and images; valuation products and services; home warranty products; property and
casualty insurance; and banking, trust and investment advisory services. With revenues of $5.2 billion in 2015, the company offers
its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was
recognized by Fortune® magazine as one of the 100 best companies to work for in America. More information about the
company can be found at www.firstam.com.
Media Contact:
First American Financial Corporation
Marcus Ginnaty
Corporate Communications
714-250-3298
or
Investor Contact:
First American Financial Corporation
Craig Barberio
Investor Relations
714-250-5214
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