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Sales are Close to Peak, But Not Quite There

money-houseThe consensus within the industry is that existing-home sales are having their best year in a decade. But there is still room for improvement, according to one analysis.

First American Financial Corporation, in its November 2016 Potential Home Sales report, found existing-home sales to be at a seasonally-adjusted annualized rate of 6.1 million, which was 103.5 percent higher than the trough for existing-home sales market potential in December 2008.

A recurring storyline in the existing-home sales market has been a short supply of homes for sale, which is causing the market to underperform, according to First American. Mortgage interest rates which have risen substantially and are well above 4 percent now may cause some affordability issues—but there is some good news on the affordability front.

“While rising rates reduce affordability for potential first-time homebuyers, the expected moderation of price appreciation will align house price growth more closely with recently increasing income growth to help offset reduced affordability in the year ahead,” Fleming said.

Even with an increase of 233,000 sales (4 percent) in November compared with a year ago, the market for existing-home sales was still approximately 98,000 (1.6 percent) below its peak market potential, reached in July 2005, according to First American.

“The market potential for existing-home sales continues to grow based on the strength of the broader economy, particularly wage growth, as well as improving access to credit,” Fleming said. “But, the market continues to underperform its potential, primarily a result of persistently tight inventory.”

Tight inventory has consistently put upward pressure on home prices, causing them to appreciate more rapidly than they would have otherwise. In fact, Redfin recently reported that home prices rose by 8 percent over-the-year in November, their fastest rate of appreciation in 14 months. Fleming said there is good news on that front, too.

“Home price appreciation is typically more sensitive to mortgage rate increases and I expect to see a decline in the house price growth rate of almost a full percentage point by the end of 2017,” Fleming said. “The ‘taper-tantrum’ in 2013, which was a larger increase in mortgage rates than we have seen in recent weeks, produced a similar result—a decline in sales activity, but a more pronounced decline in house price appreciation.”

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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