First American Financial Corporation is reporting that tenure length has increased year-over-year by 11% in July and has caused the loss of nearly 450,000 potential home sales—a monthly decrease of 0.3%.
“While there were a flurry of forces boosting the market potential for existing-home sales in July, the low supply of homes for sale continues to hold market potential back,” said First American Chief Economist Mark Fleming. “Existing-home sales make up approximately 90% of all home sales, which means existing homeowners must sell their homes in order for homes to be available for sale.
“Rising tenure length, therefore, means both fewer buyers and fewer homes on the market, keeping existing-home sales below potential.”
Despite the effects increased tenure has on the market, Fleming said the housing market “essentially reached its potential” in July, as actual existing-home sales were 0.05% above the market’s potential. He added that existing home sales are running very close to 2015 numbers, although mortgage rates have fallen and incomes have increased in 2019.
“Housing market potential benefited from a 10.6% year-over-year increase in consumer house-buying power in July, as the 30-year, fixed-rate mortgage, an important component of consumer house-buying power, fell to its lowest point since November 2016,” Fleming said.
Fleming said there are positive signs ahead, though, as increased tenures are the result of a “lock-in” effect from falling rates and seniors wanting to age in place.
Freddie Mac’s latest Primary Mortgage Market Survey reported that the average rate for a 30-year fixed-rate mortgage was 3.6%, which is approaching the all-time low of 3.3% set in 2012.
Fleming said existing homeowners are sitting on roughly $5.7 trillion of equity that could be used to buy a new home.
“If mortgage rates remain this low, more existing-home owners may be enticed to move. It’s clear that demand for existing homes is strong, but one can’t buy what’s not for sale,” said Fleming. “Declining mortgage rates could be the factor that moves the needle for those that still feel rate-locked in.”