The market for existing-home sales [1] outperformed its potential by 4.6%, or an estimated 239,000 seasonally adjusted annualized rate (SAAR), and the market performance gap rose by roughly 92,680 SAAR sales in October, according to First American Financial Corporation.
Potential existing-home sales fell to a 5.17 SAAR—0.6% month-over-month decline. However, this is a 54% increase from the market potential low reached in February 1993.
“Two forces drove the month-over-month decline in the potential for existing-home sales—a month-over-month decline of 0.8% in consumer house-buying power, the first decline since November 2018, and the continued impact of rising tenure length,” said First Amerian Chief Economist Mark Fleming. “The decline in house-buying power dampened market potential substantially. Examining how house-buying power influences market potential can provide insight into the outlook for the housing market.”
Fleming added that consumer home-buying power rose in 2019, which provided a needed boost to the housing market potential. He added income grew 1.9%, and mortgage rates fell 0.77% since the start of 2019, causing home-buying power to rose 12% from January.
Tenure length continues to be a factor for housing, and the length people live in their homes increased by 6% in October compared to January, and 0.7% from September. Tenure length reduced the market potential for existing-home sales by 31,800.
“Tenure length and house-buying power are two of the most influential forces on market potential, and they combined to drag down the market potential for existing-home sales by 0.6% compared with last month, despite positive contributions from new home construction (1,300 potential home sales), looser credit standards (7,500 potential home sales), rising house prices (9,600 potential home sales), and increasing household formation (6,500 potential home sales),” Fleming said.
Fleming noted that “one month of declining housing-buying power is not a trend,” and mortgages rates are expected to remain between 3.7% and 3.9% heading into 2020—near historic lows.
“Meanwhile, household income is expected to continue to grow as wages rise. It’s possible that house-buying power in 2020 may dip lower than in the spring and summer of 2019, but will likely remain near historical highs,” Fleming said.