“As we discussed in last month’s release of our Potential Home Sales model, the October to November swoon was not unique to 2015. At the time, Pending Homes Sales indicated that there would be a strong rebound in December, as delayed closings due to the Know-Before-You-Owe rule eventually closed,” said Mark Fleming, chief economist, First American. “Last month, we argued that the month-over-month volatility was not an indication of any fundamental changes in market conditions. The rebound in December existing-home sales is much more in line with our expectations for market sale activity.”
First American’s Potential Home Sales Model gauges home sales potential based on current fundamentals.
According to the model, potential home sales are up 76% from the low point reached in February 2009.
“This month, potential home sales remained at the 5.7 million (SAAR) level, reducing the gap between our forecasted January actual existing-home sales level and potential existing-home sales in January to a meager 168,000 sales,” Fleming said. “The market is aligning with its potential.”
Originators can expect falling interest rates to help encourage the market going forward.
“Mortgage rates actually declined in January due to the high degree of market volatility and the ‘flight to safety’ that drove down long-term treasury yields, the benchmark underpinning long-term mortgage rates. Originally suggesting that 2016 would be the year in which rates begin normalization, the Fed is now much more likely to slow down the pace of rate normalization due to deterioration in global economic conditions,” Fleming said. “Is it possible that mortgage rates could break through to new historic lows or remain below 4 percent for another year? As usual, mortgage rate trends will heavily influence housing prices.”
The mortgage industry has rebounded following TRID implementation, according to one title insurer.