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Lack of Equity to Blame for Low Existing Home Sales

home-for-saleNext week, the National Association of Realtors (NAR) will release its existing home sales numbers, along with some key findings about the current conditions of the housing market.

According to Mark Fleming, chief economist at First American, the biggest takeaway is that the housing market, particularly the existing homes sector, is drastically underperforming. The impetus for this underperformance, he said, is an overall lack of buyer equity throughout the nation.

“Lack of equity remains a significant constraining factor for market participants and is the primary reason the existing-home sales market is underperforming, “Fleming said in an email.  “Existing homeowners are the largest share of the existing-home sales market, and they can’t be home buyers if they don’t have the sufficient equity to be home sellers.”

This lack of equity is affecting inventory across the country, according to Fleming.

“This is one of the key reasons we are observing tight inventory in many markets,” Fleming said. “Yet the appreciation we do observe, returning equity to existing homeowners, is the most significant key driver of the improvement in expected sales.”

To come to these conclusions, Fleming used a proprietary model developed by First American, which allows him to gauge whether existing home sales are under capacity or over capacity, with regards to current market conditions.

According to the models analysis of NAR’s upcoming numbers, March saw .04 percent increase over February and an 8.1 percent increase over one year previous. This, he said, shows the market is moving in a positive, upward direction.

Additionally, First American’s analysis also found that the seasonally adjusted capacity for annual sales increased by 27,000 last month, largely due to improved economic conditions and growth in housing prices. Population jumps influenced the numbers as well, while increasing interest rates slightly reduced the capacity for sales overall.

If lack of equity weren’t a problem, Fleming said, most of these signs would indicate a strong sales market at work.

“The fundamental market conditions support a higher level of sales,” Fleming said. “We have historically low interest rates and affordability remains high. Without equity constraints, these conditions would stimulate more sales activity than we currently see in the market.”

NAR will officially release its existing sales findings to the public on Wednesday, April 22. Check the MReport website for more updates upon its release.

About Author: Aly J. Yale

Aly J. Yale is a freelance writer and editor based in Fort Worth, Texas. She has worked for various newspapers, magazines, and publications across the nation, including The Dallas Morning News and Addison Magazine. She has also worked with both the Five Star Institute and REO Red Book, as well as various other mortgage industry clients on content strategy, blogging, marketing, and more.
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