The 2022 housing market is very 2019, according to the March First American Potential Home Sales models. The pandemic years are anomalous, so comparing today’s market with pre-pandemic ones is helpful, according to First American Chief Economist Mark Fleming.
“Since the start of the global pandemic in March 2020, we have weathered unprecedented pandemic-induced changes and the housing market has been no exception. The typically hot spring home-buying season in 2020 was initially frozen by the pandemic’s impacts and shelter-in-place orders. As potential homebuyers emerged from the stay-at-home orders, the housing market began to heat up,” Fleming said in a release. “This rising tide of pent-up demand aligned with historically low mortgage rates and hesitant sellers constraining the supply of homes for sale, creating a perfect storm for rapid house price growth.
“The ability to work-from-home further increased demand, as potential homebuyers realized they had more geographic flexibility in their home searches. The result? The most competitive housing market in recent history,” he said. “While housing market potential entering the 2022 spring home-buying season may be easing down from recent peaks, potential home sales remain strong and above pre-pandemic levels.”
For example, the March market potential for existing-home sales was estimated to be 5.97 million at a seasonally adjusted annualized rate (SAAR), down 3.2 percent month-over-month and 3.9 percent year-over-year, according to First American Potential Home Sales models. However, it’s 8.6 percent higher than in March 2019, the last full pre-pandemic spring homebuying season
“In 2019, the economy was growing, demographic demand was strong, rates were sitting at approximately 4 percent, and housing supply was constrained,” Fleming said. “Examining what’s changed since the pre-pandemic spring housing market offers helpful perspective on the 2022 spring homebuying season.”
Homeowners are continuing to stay put longer, further constricting housing supply.
“The average length of time someone lives in their home continues to set new records, rising to approximately 10.5 years in March, up from 9.75 years in the spring of 2019,” Fleming said. “Homeowners staying put reduced housing market potential by 288,000 potential home sales compared with March 2019.”
There are other forces that have pushed the housing market forward since 2019, he added.
“Household formation, a primary and long-term driver of homebuying demand, has continued to rise and contributed to a gain of nearly 273,000 potential home sales since March 2019,” Fleming said. “Strong house price appreciation typically encourages more existing homeowners to move. As homeowners gain equity in their homes, they may be more likely to consider using the equity to purchase a larger or more attractive home. Rapid house price appreciation has increased housing market potential by approximately 530,000 potential home sales in March compared with 2019.
“House-buying power, how much home one can afford to buy given household income and the prevailing mortgage rate, is 5.6 percent higher than it was in March 2019, thanks to modestly lower mortgage rates and higher household incomes,” he said. “The increase in house-buying power boosted housing market potential by approximately 113,000 potential home sales in March compared with 2019.”
It's normal to see moderation in the market potential for existing-home sales, Fleming said, as it is important to keep the moderation in perspective.
“Housing market potential today remains above 2019 levels, which was the housing market’s strongest year in over a decade at the time thanks to the strengthening demographic tailwind and strong house-buying power,” he said. “While comparisons to 2021 may not flatter the housing market entering the 2022 spring homebuying season, historical context matters. So far, the 2022 housing market is looking very 2019. The recent pandemic years are anomalous, so comparing today’s housing market with the pre-pandemic era provides helpful insight.”