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Tight Supply Keeping Housing Market Below Potential

The housing market still wasn’t living up to its potential in October 2017, with new data from First American highlighting a market performance gap that is the largest since November 2016. According to First American’s Potential Home Sales model for the month of October, potential existing-home sales got a 0.4 percent month-over-month bump, reaching a 5.89 million seasonally adjusted, annualized rate (SAAR). However, First American says the market for existing-home sales is underperforming its potential by 455,000 (SAAR) sales (7.7 percent).

Market potential was on the upswing, increasing by an estimated 26,000 (SAAR) sales between September 2017 and October 2017. The October 2017 potential existing-home sales were down by 4.3 percent compared to the same month last year, however, although the October numbers were still 95.7 percent higher than the market potential low point from December 2008. As of October 2017, potential existing-home sales are 8.2 percent below the pre-recession peak of July 2005.

First American Chief Economist Mark Fleming’s monthly analysis explained that continuing supply problems are going head-to-head with strong demand to shape the current state of the market. The number of homes for sale has declined on a year-over-year basis for the past 38 months in a row. Moreover, according to Realtor.com, active inventory is down by 7.6 percent and homes are selling 7.6 percent faster than a year ago. Per the First American Real House Price Index, affordability was down 9.6 percent in August 2017, as compared to August 2016.

In Fleming’s October market analysis, he said:

Tight supply and strong first-time home buyer demand continue to be the dominant factors driving the current state of the housing market. Existing homeowners remain reluctant to list their homes for sale for fear of not being able to find a home to buy, keeping supply levels low. At the same time, a healthy number of potential home buyers continue to enter the market, so house prices are increasing and affordability is declining. Historically low rates offer some relief in the form of strong borrowing power, however rates are expected to rise in the months to come, so if you are renting and thinking of buying, now is the time.

About Author: David Wharton

David Wharton has been a freelance writer and editor for over 13 years, contributing to publications such as The Daily Dot, CinemaBlend, ScreenRant, and Creative Screenwriting Magazine. He holds a B.A. in English from the University of Texas at Arlington. He lives in Texas with three children, four dogs, and his wife.

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