In the report on Potential Home Sales Model for February 2023, recently published by First American Financial Corporation, it has been found that the seasonally adjusted annualized rate of potential sales for existing homes has gone up to 5.74 million units, representing a month-over-month surge of 2.6%.
Moreover, it is worth noting that this figure indicates a substantial growth of 56.7% from the market potential’s lowest point recorded in February 1993.
On the other hand, there has been a decline of 11.4% in the market potential for existing-home sales compared to the previous year, resulting in a loss of 702,000 units. As of February, the present potential for existing-home sales is estimated at a seasonally adjusted rate of 1,325,700 units, which is 19.5% lower than the market potential’s pre-recession peak recorded in April 2006.
Mark Fleming, Chief Economist at First American, explained that historically, the housing market experiences its busiest time during the spring season, with around 36% of existing-home sales occurring between March and June, based on data from First America Data & Analytics. This trend is driven by various factors such as weather, holidays, and the traditional school year schedule, making spring and summer an optimal time for many potential home buyers to move. However, there are indications that this year’s spring home-buying season is not picking up as expected. In February of this year, the average number of mortgage applications submitted for home purchases was compared to that of February 2019, which was the last ‘normal’ year before the pandemic, revealing a decline of over 30%.
According to Chief Economist at First American, Mark Fleming, the housing market’s performance in the coming months depends on several factors such as mortgage rates and inventory. Despite some optimism stemming from a rise in the Potential Home Sales Model for four consecutive months, Fleming emphasizes that low inventory remains a challenge even if demand picks up.
According to Fleming, the average 30-year fixed mortgage rate has decreased for four months in a row, providing an affordability boost for potential first-time home buyers and encouraging those who were previously hesitant to enter the market. However, low inventory remains an issue, prompting some buyers to consider new homes as an alternative.