Current homeowners are reluctant to sell because of concern over the ability to find another home to buy, according to Mark Fleming, Chief Economist for First American Financial Corporation.
According to First American’s Potential Home Sales Model for January 2017 released on Tuesday, potential existing-home sales decreased to a 5.5 million seasonally adjusted, annualized rate (SAAR). This represents an 81.7 percent increase from the market potential low point reached in December 2008.
The market for existing-home sales is underperforming its potential by 0.2 percent or an estimated 9,500 seasonally adjusted annualized rate (SAAR) of sales, which is the smallest performance gap in the last 18 months. Last month’s revised underperformance gap was at 2 percent.
“The housing market’s potential for existing-home sales fell 1.9 percent over the past twelve months, driven primarily by rising mortgage rates,” Fleming said. “The rising rates are influencing potential sellers to hold their properties off market and decreasing affordability, which modestly reduced first-time homebuyer demand.”
Potential existing-home sales are 328,000 SAAR or 13.8 percent below the pre-recession peak of market potential according to First American, which occurred in July 2005.
Fleming also explained that higher interest rates discourage the decision to sell because even a new mortgage for an equal amount becomes more expensive in terms of monthly debt-service payments as rates rise. He believes that an important factor in the decision to buy or sell a home should be the market’s overall health, which he says is largely a function of supply and demand.
“Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future,” he said. “That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time. Historical context is critically important.”
To read the full January 2017 Potential Home Sales Model, click here.