Potential Home Sales Fall 9% in March

First American’s Potential Home Sales Model found that the market potential fell 9% in March and 7.5% year-over-year—a decline of nearly 400,000 potential existing-home sales. 

Mark Fleming, Chief Economist at First American, said this is the lowest level for the potential sales model since February 2016. 

“The coronavirus pandemic continues to take hold of the domestic and global economy. The housing market, although in a better position than it was at the onset of the last recession, will not be immune to the impact,” Fleming said. 

Fleming added that the impact of the virus has already been seen, as weekly unemployment claims have “soared to record highs,” which is causing a decline in consumer confidence. 

Not only has the jobless rate been affected, but Fleming also pointed out the impact that all of this coronavirus upheaval is having on potential home sales.

“The pandemic’s impacts have also influenced our Potential Home Sales Model. Market potential fell in March, as lenders tightened credit due to concern that many economically impacted households will not be able to make their mortgage payments,” he said. 

Fleming further explained why the tightening credit so deeply shook the industry, saying, “When lending standards tighten, fewer people can qualify for a mortgage to buy a home. When homeowners are less likely to qualify for a mortgage for a new home or qualify for a low mortgage rate, they are more likely to stay in their current home. 

“Additionally, many potential first-time homebuyers no longer qualify for a mortgage when credit tightens. So, tighter lending standards reduce demand and, in turn, housing market potential.”

Fleming said he expects mortgage rates to remain low, but home-buying power could be impacted due to tighter lending standards. 

“The contraction in credit availability reduces demand. However, housing supply remains at historically low levels, so house price growth is likely to slow, but it’s unlikely to go negative, as house prices are ‘downside sticky.’ The result? The immediate impact of the coronavirus pandemic on the housing market will be a reduction in spring sales activity and a moderation of price appreciation,” he said.