Potential existing home sales decreased to a 5.62 million seasonally adjusted annualized rate (SAAR), a 2% month-over-month decrease, according to First American Financial Corporation’s Potential Home Sales Model for May, representing a 61.2% increase from the market potential low point reached in February 1993.
The model measures what the healthy market level of home sales should be based on economic, demographic, and housing market fundamentals. The data showed that the market potential for existing home sales decreased 10.5% year over year, a loss of 660,395 (SAAR) sales.
Currently, potential existing-home sales is 1,171,000 (SAAR), or 17.2% below the pre-recession peak of market potential in April 2006, according to the model.
First American Chief Economist Mark Fleming said two trends were responsible for the slow-to-normalize market: You can’t buy what’s not for sale – and existing homeowners have little incentive to relieve the supply pressure, keeping a lid on housing market normalization.
“Many existing homeowners are rate locked into historically low, sub-3% mortgage rates, and now that rates are rising, there is a financial disincentive to sell their homes and buy a new home at a higher mortgage rate,” said Fleming. “The golden handcuffs of low mortgage rates prevent more supply from reaching the market.”
Seniors choosing to age in place, rather than downsize or move to another home, further limits housing supply, Fleming said, citing a 2019 study from Freddie Mac. “The study shows that if adults born between 1931-1959 behaved like earlier generations, they would have released nearly 1.6 million additional housing units to the market by 2018,” said Fleming. “As seniors continue to choose to age in place, there will be fewer existing homes available for sale.”