The low inventory of existing US homes continues to constrain sales well below their potential.
That’s according to First American Financial Corporation’s potential home sales model which estimates the expected level of existing-home sales based on market fundamentals.
It shows a seasonally adjusted annualized rate of 6.12 million sales in June, up 1.1% from May and up 3.3% from June 2017. The market underperformed by 4.2% or 256,000 homes.
“The lack of housing supply is the primary culprit for the persisting gap. The inventory of homes for sale in most markets remains historically tight, yet demand continues to rise as millennials further age into homeownership, as explained in our Homeownership Progress Index,” said chief economist Mark Fleming. “The housing market is not plagued by a decline in demand, but rather a shortage of supply. The result -- surging house prices.”
So why aren’t sellers selling?
Fleming says that record high prices and home equity should be driving listings but are ‘rate locked’ with mortgages at historically low rates that they are not prepared to lose.
This, as mortgage rates rise, is likely to be an issue for more sellers, tightening inventory further.
“Additionally, existing homeowners are facing a ‘prisoners dilemma.’ Many homeowners may want to sell their home and buy another, but do not, for fear that they will not be able to find a home to buy, which prevents more supply from reaching the market and further exacerbates the lack of inventory,” said Fleming. “Because many homeowners are increasingly rate locked-in and fear not being able to find something to buy, their home is becoming their prison.”
Building new homes is one solution to the inventory problem but Fleming concludes that for short-term supply relief, sellers will need to start selling.
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