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Why Home Sales Are Performing Below Potential

HousingHome prices increased by 3.7 percent year over year, but lagged behind previous year’s increases, according to the RE/MAX National Housing Report [1]. Last year, home prices increased by 5.4 percent from August 2016 to August 2017. According to the report, August 2018 is the sixth time this year that home sales lagged behind last year’s pace.

The report also found that Median Sales Price of $248,500 marked the 29th consecutive month of year-over-year price increases.

“It varies by market, but we’re hearing that buyers are being more selective and sellers are becoming more pragmatic,” said RE/MAX CEO Adam Contos. “That dynamic could bring inventory levels up, especially in the most overheated markets, where we expect to see the clearest signs of equilibrium returning. The economy is strong and potential buyers are out there—they just need more listings, at the right price points, to consider. We believe that balance will return, which will be good for everyone in the long run. It’s just a matter of when.”

Additionally, potential existing-home sales increased by 0.8 percent month-over-month to 6.13 million seasonally adjusted annualized rate, representing a 67.4 percent increase from the market potential low point reached in February 2011. According to First American [1], potential existing-home sales is 1.16 million.

“In August, the housing market continued to underperform its potential. Actual existing-home sales are 6.5 percent below the market’s potential, according to our Potential Home Sales model. That means the market has the potential to support more than 400,000 more home sales at a seasonally adjusted annualized rate,” said Mark Fleming, Chief Economist at First American. “Severe supply shortages have been the primary culprit for this performance gap – you can’t buy what’s not for sale. The supply shortage, combined with first-time home buyer demand, has created a strong seller’s market, where many potential buyers are bidding on the same few homes, which accelerates price appreciation.”