Potential for Existing Home Sales ‘Steadily’ Increased in July

The rising volume of existing home sales doesn’t appear to be going anywhere thanks to record low mortgage rates and demand fueled by millennials hitting the age of homeownership, according to FirstAM.com. 

There is a catch. If not on the market, it is out of the reach of potential buyers, says Chief Economist Mark Fleming.

According to FirstAM’s July potential home sales model, last month, there was an uptick in potential existing home sales to a 5.59 million seasonally adjusted annualized rate (SAAR), a 1.9% month-over-month increase. That’s a 61.3% hike from the market potential low point in February 1993.  

Meantime, compared to a year ago. among existing-home sales, the market potential parachuted 4.0%. That’s an almost 215,800 (SAAR) hike in sales.  

Potential existing-homes sales now is 1.2 million (SAAR)—or 17.7% below the pre-recession peak of market potential from April 2006, while the market for existing-home sales failed to meet its potential by 1.0% or approximately 56,000 (SAAR) sales. Meanwhile, between June 2020 and July 2020, there was a bounce by an estimated 16,000 (SAAR) sales in the market performance gap.  

With a July unemployment rate of 10.2% and roughly 30 million Americans claiming unemployment benefits, it’s clear that the domestic economy continues to feel the pain inflicted by the coronavirus pandemic, said Fleming. "Yet, at least for now, the housing industry continues its impressive V-shaped rebound. Weekly purchase applications have surpassed their levels from one year ago for 12 straight weeks as potential buyers respond to record low mortgage rates. The market potential for existing-home sales reflects the accelerated activity, according to our Potential Home Sales Model. 

“After hitting a 2020 low point in April, the market potential for existing-home sales steadily increased, reaching 5.6 million sales at a seasonally adjusted annualized rate (SAAR) in July, up 1.9 percent from June and 4.0 percent from one year ago,” said Fleming.      

Fleming also cited July’s expansion of household formation, with millennials continuing to form households, which in turn has stepped up the housing demand. “Rising household formation increased market potential by 289,160 potential home sales in July compared with last year.” 

On top of that, house-buying power ballooned 15%. Since last July, house-buying power, how much home one can afford to buy given household income and the prevailing mortgage rate, jumped 15% he said. “The momentum was powered by the combined impact of lower mortgage rates, which were 0.75% points lower in July than a year ago, and a continued increase in annual household income,” said Fleming. 

Last month the reported surge in the gap in supply and demand that haunted the home market preceding COVID-19, as indicated by First American Financial Corporation for May 2020. The report measures the price changes of single-family properties throughout the nation, adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state, and metropolitan area levels 

Even more significantly, this imbalance between supply and demand will only grow, alongside increasing house prices, experts say. Home prices will remain strong, at least through the summer season, noted Fleming.