Home sales did not meet their potential in September, but the gap between market performance and potential decreased, according to First American Financial.
Potential existing-home sales fell 0.02% month over month to a 5.48 million seasonally adjusted annualized rate (SAAR), according to First American’s September Potential Home Sales Model. Annually, the market potential for existing-home sales rose by 3.8% to 198,000 SAAR.
Currently, potential existing-home sales are 1.25 million, or 18.6%, below the pre-recession peak of market potential in March 2004.
“In September 2019, the housing market performed to its potential, as actual existing-home sales were a marginal 0.04%, or an estimated 2,340 seasonally adjusted annualized sales, below market potential,” said Mark Fleming, chief economist of First American. “Housing market potential decreased relative to last month, but increased 3.8% compared with September of last year.”
Despite the declines, the market perform gap narrowed by approximately 94,000 sales month over month in September.
Fleming said that lower mortgage rates and higher incomes drove a 15% annual increase in home-buying power, up to $420,250 in September. The boost then led market potential to rise from 34,390 potential home sales in September 2018 to 415,090 in September 2019.
“Housing is the most durable consumer good we’ll ever buy, and surging house-buying power fuels greater potential demand,” Fleming said. “You can’t buy what’s not for sale, but rising existing-home sales means more homes on the market, helping to meet the growing demand. While several factors may trigger a directional switch for market potential, the current environment of low mortgage rates and wage growth driven by a strong labor market supports a healthy housing market for the remainder of 2019.”