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Millennial Demand Continues to Fuel Housing Market

First American Financial Corporation released their proprietary Potential Home Sales Model for December 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. 

“In December 2021, housing market potential increased 5.0 percent compared with one year ago, but declined modestly on a month-over-month basis to a 6.37 million seasonally adjusted annualized rate of existing-home sales,” said First American Chief Economist Mark Fleming. 

For the month of December, First American updated its proprietary Potential Home Sales Model to show that: 

  • Potential existing-home sales decreased to a 6.37 million seasonally adjusted annualized rate, a 0.4% month-over-month decrease. 
  • This represents an 82.8% increase from the market potential low point reached in February 1993. 
  • The market potential for existing-home sales increased 5.0% compared with a year ago, a gain of 304,000 sales. 
  • Currently, potential existing-home sales is 419,000, or 6.2% below the pre-recession peak of market potential, which occurred in April 2006. 

The market for existing home sales outperformed its potential by 10.4% or an estimated 662,000 sales, whereas the market performance gap increased by an estimated 96,000 sales between November and December 2021. 

Existing-home sales report from the National Association of Realtors for November 2021 showed the increase in home sales was at its strongest at the upper end of the market. As sales of homes priced at more than $1 million jumped over 50% nationally, followed closely by homes in the $750,000 to the $1 million range, which increased 37%.  

Fleming touched on the final Potential Home Sales Model report of 2021, which revealed market potential ended the year strong. “The strength of the housing market is not surprising given the ongoing wave of millennial demand propelled by historically low rates and greater geographic flexibility due to work-from-home arrangements,” said Fleming.  

“The shortage of homes for sale and the increase in house price appreciation is problematic for potential first-time home buyers, who tend to be younger and do not have the equity from the sale of an existing home to bring to the closing table. Existing homeowners can use the equity from the sale of their current home to purchase a bigger or better home, if they can find one they want,” said Fleming.  

“Rapid house price appreciation and its differing impact on existing and first-time home buyers will persist until the supply and demand imbalance improves. In the game of housing musical chairs, it’s clear the housing market needs more chairs.” 

The next Potential Home Sales Model will be released on February 16, 2022 with January 2022 data. 

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].
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