New reporting from First American shows potential existing home sales climbing in January, the third straight month of increases.
First American’s Potential Home Sales Model measures what the healthy market level of home sales should be based on economic, demographic, and housing market fundamentals.
Results from January show potential existing-home sales increasing to 5.32 million, according to a seasonally adjusted annualized rate (SAAR). That’s a 0.6 percent month-over-month increase.
This also represents a 53 percent increase from the market potential low point reached in February 1993, according to First American.
Market potential for existing-home sales in January decreased 16 percent compared with January 2022, a loss of 1,005,500 (SAAR) sales.
Currently, potential existing-home sales amount to 1,468,500 (SAAR), or 21.6 percent below the pre-recession peak of market potential, which occurred in April 2006.
“There’s no question that the housing market fell into a deep freeze in the second half of 2022,” First American Chief Economist Mark Fleming said in a release. “Excluding the early months of the pandemic, the pace of existing-home sales fell below 5 million seasonally adjusted sales for the first time since 2014. Yet, signs have emerged that sales activity may pick up in the months ahead. Purchase mortgage applications, pending home sales, and builder confidence are all leading indicators of future sales activity, and each metric has ticked up in recent months.”
Fleming added that while mortgage rates remain significantly higher compared with one year ago, they have retreated for three consecutive months, improving affordability and encouraging buyers and sellers to jump back into the market.
“Our Potential Home Sales Model … has now increased for three months in a row, confirming that housing market potential has started to improve alongside lower mortgage rates,” he said.
Heightened mortgage rate sensitivity also continues to play a heavy hand in the housing market, Fleming said.
“Higher mortgage rates and tight housing supply increased homeowner tenure to the highest level in recorded history and contributed to the sharp slowdown in existing-home sales in 2022,” he said. “The
rapid rise in mortgage rates in 2022, the steepest annual increase since 1981, has left existing homeowners, as well as first-time home buyers, increasingly ‘mortgage-rate sensitive.’
“However, in the last three months, the 30-year, fixed mortgage rate has declined by 0.6 percentage points and seasonally adjusted purchase mortgage applications have increased steadily over that same period. The decline in mortgage rates has encouraged some, who previously felt ‘rate locked-in,’ to re-enter the market in addition to increasing house-buying power, thereby providing an affordability boost for potential first-time buyers.”