The market’s potential for existing home sales increased in May, even as the number of sales continued to underperform, according to the Potential Home Sales model for First American Financial Corp., a provider of title insurance, settlement services and risk solutions for real estate transactions.
Potential existing home sales increased to a seasonally adjusted annualized rate of 5.72 million, an increase of 1.8% from the previous month. This represents a 90.3% increase from the market potential low point in December 2008.
“As more and more Millennials marry and have children, among the strongest determinants for the desire to be a homeowner, demand for housing will remain robust,” First American Chief Economist Mark Fleming said. “However, the housing market faces a dilemma that is restricting the inventory of homes for sale.”
“As rates rise and the cost to finance a mortgage increases, existing homeowners are prisoners in their own homes,” Fleming said. “In addition, the fear of being unable to find a home to purchase hinders homeowners’ decision to sell.”
The market potential for existing-home sales fell by 1.1% from last year, a drop of 62,000 sales. The current potential for existing-home sales sits at 644,000 sales, 11.5% below the pre-recession peak of market potential July 2005.
Despite the drop in potential sales, they are still underperforming the market potential by 3.8% or an estimated 218,000 sales.
“The low inventory of homes for sale is preventing the housing market from reaching its potential and pressuring prices higher,” Fleming said. “Increasing shortages of homes for sale is a growing problem for potential homebuyers, especially potential first-time homebuyers today, as it causes affordability to decline.”