First American Financial’s The proprietary model of potential home sales for July 2021 showed that potential sales of existing homes increased to 6.41 million seasonally adjusted annualized (SAAR) sales, up 1.3% from the previous month. This is 82% more than the potential market low reached in February 1993.
“The growth of the potential of the housing market can be primarily explained by the decrease in rates on mortgage loans and the growth of incomes of the population, which contributes to an increase in the purchasing power of housing,” he said. Mark Fleming, Chief Economist at First American. “Five of the six elements of our Potential Home Sales Model changed in favor of increasing market potential, but this was partially offset by an increase in the average length of time people live in their homes and the subsequent restrictive impact on housing supply negatively affecting market potential. You cannot buy what is not for sale, even if your purchasing power says you can afford it. “
Market potential for existing home sales increased 15.8% year-over-year to 873,500 (SAAR) sales. The current potential sales of existing homes is 380,400 (SAAR), down 5.6% from the pre-crisis peak of market potential in April 2006.
As more Americans returned to the workforce in July, buyers gradually regained their confidence as US Bureau of Labor Statistics (BLS) reported that total non-agricultural employment rose by 943,000 in July 2021, as the unemployment rate fell 0.5 percentage points to 5.4%, while employment growth was noted in the leisure and hospitality sectors, education of local governments as well as in the field of professional and business services. The number of unemployed people fell 782,000 to 8.7 million in July, compared with highs seen at the end of the recession in February-April 2020.
“The purchasing power of a home, which is how much home you can afford to buy, given family income and prevailing mortgage rates, has increased 1.9% from last month,” Fleming said. “The main driver of the increase in home purchasing power was the Delta Failure in mortgage rates, a 0.1 percentage point decline in the 30-year fixed rate on mortgages, in part due to economic and health uncertainty due to option Delta putting downward pressure on the Treasury. yield and, in turn, mortgage rates. With earnings unchanged in June, the “delta-fall” in mortgage rates contributed to a $ 7,000 increase in home purchasing power. Household incomes also rose, leading to an increase in the purchasing power of homes by $ 2,500. An overall $ 9,500 increase in home purchasing power increased market potential with 41,300 potential home sales. ”
Fleming also noted another factor associated with the increasing potential of the housing market, namely the continued growth in the number of households.
“New household formation, mainly driven by millennials, continued to grow in July, leading to increased demand for housing,” Fleming said. “The rise in the number of households increased the potential of the housing market by 20,800 potential home sales in July compared to the previous month.”
Recent National Association of Homebuilders (NAHB) Report revealed an increase in the share of new buyers – 56% in the third quarter of 2020, which increased every quarter, reaching 64% in the second quarter of 2021. The share of millennials planning to buy a home jumped from 19% to 29% in the second quarter of 2021. Among Gen Z buyers, it jumped from 14% to 21%. Generation X and boomers haven’t changed much over this period.
Fleming also noted that one of the driving forces reducing the potential of the housing market is homeowners choosing to stay in their homes. The first American found that homeowners stayed in their homes for a record 10.6 years. Fannie Mae’s Recent Homebuyer Sentiment Index (HPSI) found that stock shortages and continued price increases on listings continue to make the prospect of buying a home and buying a home too daunting for most Americans.
Doug Duncan, Fannie Mae’s Senior Vice President and Chief Economist, said:“The percentage of respondents who cited high home prices as the main reason this is a ‘bad time to buy’ also hit an all-time high. On the other hand, seller sentiment remains extremely high and well above pre-pandemic levels for the same reason often cited: high house prices. ”
“The average life expectancy of a person in his home increased in July compared to a month ago, but at a slower pace than in the previous three months. However, the growth has negatively impacted the potential of the housing market, reducing it by 9,100 potential home sales compared to a month ago. Overall, the average length of time people stay in their homes has increased since the housing market crash a decade ago, which means fewer and fewer people are listing their homes for sale, limiting housing supply and holding back potential sales, ”Fleming said. “Many homeowners have refinanced to record low mortgage rates in 2020. Even though rates are again below 3%, these homeowners are less likely to move because they face a financial penalty in the form of a higher mortgage rate and a larger monthly payment, even if they borrow the same amount as an existing mortgage. The lack of housing supply also prevents homeowners from listing their homes for sale – you can’t buy what isn’t for sale, and you won’t sell if you can’t find something better to buy. “