Housing supply will remain a drag in 2018 says First American

by Steve Randall22 Dec 2017
The tight supply of homes that has hampered sales in many US markets during 2017 is not going anywhere soon.

An outlook from First American Financial Corporation expects inventory to be constrained in 2018 with strong first-time buyer demand driven by low mortgage rates and the growing economy.

“Existing homeowners are increasingly prisoners in their own homes, preventing additional existing-home supply from entering the market. Homebuilders are also struggling to add more new home inventory, so both sources of housing supply face challenges,” said Mark Fleming, chief economist at First American. “The housing supply shortage hindering the market today is likely to remain in 2018.”

In November, First American’s potential home sales model – which takes into account historical context such as what home sales should be based on the economic, demographic, and housing market environments -  saw a decline to a seasonally adjusted annualized rate of 5.96 million, down 2% from October. The market potential for existing-home sales decreased by 1.5% compared with a year ago, a loss of 93,000 (SAAR) sales.

The decrease was driven by a reduction in the expectation
for future supply, even as mortgage rates, which remained below 4 percent for the sixth consecutive month, fuel demand,” explained Fleming.

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