SANTA ANA, California
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March 18, 2022
(press release)
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There are many unknowns as the spring home-buying season begins, but one thing is clear – if you sell it, they will buy it, says Chief Economist Mark Fleming First American Financial Corporation (NYSE: FAF), the premier provider of title, settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, today released First American’s proprietary Potential Home Sales Model for the month of February 2022. The Potential Home Sales Model measures what the healthy market level of home sales should be based on economic, demographic, and housing market fundamentals. February 2022 Potential Home Sales Market Performance Gap Chief Economist Analysis: Market Potential for Existing-Home Sales Nearly Unchanged Year Over Year Housing Supply Shortage Remains the Housing Market’s Most Significant Long-Term Headwind The Short-Term Headwinds Holding Back Market Potential Housing Market Potential Tailwinds – Equity from Price Appreciation and Demographic Demand What Does This Mean for the Spring Home-Buying Season? Next Release About the Potential Home Sales Model Disclaimer About First American
For the month of February, First American updated its proprietary Potential Home Sales Model to show that:
“Following nearly two years of a soaring housing market, the 2022 spring home-buying season will be watched closely for signs that more balance may be returning to the housing market. Our Potential Home Sales Model estimates the expected level of existing-home sales based on market fundamentals, providing a helpful tool to assess the state of the housing market as spring home-buying ramps up,” said Mark Fleming, chief economist at First American. “In February, the market potential for existing homes sales was estimated to be 6.17 million at a seasonally adjusted annualized rate (SAAR), down 2.8 percent from January, but nearly flat with a year ago. We can use the Potential Home Sales Model to identify the tailwinds propelling the housing market forward, and the headwinds pushing back on market potential. Among the headwinds, there are both long-term and short- term dynamics impacting housing market potential to consider.”
“Despite the current headwinds, two forces propelled housing market potential forward in February. House price appreciation is expected to remain strong and may encourage more existing homeowners to move. As homeowners gain equity in their homes, they may be more likely to consider using the equity to purchase a larger or more attractive home,” said Fleming. “The historic imbalance in housing supply relative to demand over the last year fueled faster house price appreciation, which increased housing market potential by nearly 27,000 potential home sales in February compared with one month ago. Annual house price growth has moderated from its peak in recent months, and existing homeowners may fear missing out on selling their homes at historically high prices, prompting them to sell. In addition, household formation, a primary and long-term driver of home-buying demand, continued to rise and contributed a gain of 2,000 potential home sales.”
“While the housing market potential headwinds exceeded the tailwinds in February, it’s clear that demographic demand for homes remains robust, and the primary constraint to more sales is the lack of housing supply,” said Fleming. “There are several unknowns as the spring home-buying season begins, but one thing is clear – if you sell it, they will buy it.”
The next Potential Home Sales Model will be released on April 19, 2022 with March 2022 data.
Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, homeowner tenure, house-buying power in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market. When the actual level of existing-home sales are significantly above potential home sales, the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, seasonally adjusted, annualized rates of actual existing-home sales below the level of potential existing-home sales indicate market turnover is underperforming the rate fundamentally supported by the current conditions. Actual seasonally adjusted annualized existing-home sales may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and market participant behavior. Recent potential home sale estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions. The Potential Home Sales model is published prior to the National Association of Realtors’ Existing-Home Sales report each month.
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2022 by First American. Information from this page may be used with proper attribution.
First American Financial Corporation (NYSE: FAF) is the premier provider of title, settlement and risk solutions for real estate transactions. With its combination of financial strength and stability, innovative proprietary technologies, and unmatched data assets, the company is leading the digital transformation of its industry. Tracing its heritage back to 1889, First American also provides data products to the title industry and other third parties; valuation products and services; mortgage subservicing; home warranty products; banking, trust and wealth management services; and other related products and services. With total revenue of $9.2 billion in 2021, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2021, First American was named to the Fortune 100 Best Companies to Work For® list for the sixth consecutive year. More information about the company can be found at www.firstam.com.
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