Housing Market Potential Strengthens Modestly, According to First American Potential Home Sales Model
November 22, 2021 at 07:00 AM EST
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 October 2021. The Potential Home Sales Model measures what the healthy market level of home sales should be based on economic, demographic, and housing market fundamentals.
October 2021 Potential Home Sales
For the month of October, First American updated its proprietary Potential Home Sales Model to show that:
Market Performance Gap
Chief Economist Analysis: What 2021 Housing Market Dynamics Indicate for Next Year
“In September 2021, existing-home sales increased to a 6.29 million seasonally adjusted annualized rate (SAAR). Prior to the pandemic, the housing market had not reached this sales pace since 2006,” said Mark Fleming, chief economist at First American. “We may see another strong month in October, as housing market potential increased 10.3 percent compared with one year ago to 6.27 million (SAAR), according to our measure of the market potential for existing-home sales.
“As we approach the final weeks of the year, it’s important to reflect on how the housing market has performed,” said Fleming. “Analyzing the individual economic forces that have driven the continued growth of market potential for existing-home sales can provide insight into how the housing market may fare in 2022.”
Why Housing Market Potential Keeps Rising
The Only Economic Force that Reduced Housing Market Potential
What Does This Mean for Market Potential in 2022?
“In 2022, the average length of time someone lives in their home appears poised to rise again, especially as mortgage rates increase, which will prolong the housing supply shortage and dampen housing market potential. The labor market recovery is expected to continue, putting upward pressure on wages, helping consumer house-buying power. Yet, the improving economy is also likely to put upward pressure on mortgage rates,” said Fleming. “The winner of the tug-of-war between rising rates and higher household income will determine the direction of house-buying power. But, even if rising rates outpace the impact of higher incomes, buying a home is more than a financial calculation. Millennials are widely expected to continue to form households, boosting demand for homes. Strong demographic demand will continue to act as the wind in the housing market’s sails.”
The next Potential Home Sales Model will be released on December 21, 2021 with November 2021 data.
About the Potential Home Sales Model
Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, homeowner tenure, house-buying power in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market. When the actual level of existing-home sales are significantly above potential home sales, the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, seasonally adjusted, annualized rates of actual existing-home sales below the level of potential existing-home sales indicate market turnover is underperforming the rate fundamentally supported by the current conditions. Actual seasonally adjusted annualized existing-home sales may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and market participant behavior. Recent potential home sale estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions. The Potential Home Sales model is published prior to the National Association of Realtors’ Existing-Home Sales report each month.
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. © 2021 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; banking, trust and wealth management services; and other related products and services. With total revenue of $7.1 billion in 2020, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2021, First American was named to the Fortune 100 Best Companies to Work For® list for the sixth consecutive year. More information about the company can be found at www.firstam.com.