Dramatic improvement in the existing-home sales market this summer narrowed the gap between market capacity and actual sales. According to First American, the current underperformance gap is an estimated 307,000 home sales at a seasonally adjusted annualized rate (SAAR). This is significantly less than the sales capacity gap of 1.7 million existing-home sales in February 2014.

  • Underperformance gap narrowing indicates more buyers with equity in their homes are opting to sell.
  • Despite the gap narrowing, significant fluctuations in month-to-month home sales activity is not expected.
  • Millennials and boomerang buyers will play a large part in the performance of the housing market moving forward.

Dramatic improvement in the existing-home sales market this summer narrowed the gap between market capacity and actual sales.

According to First American, the current underperformance gap is an estimated 307,000 home sales at a seasonally adjusted annualized rate (SAAR). This is significantly less than the sales capacity gap of 1.7 million existing-home sales in February 2014.

“The primary reason for the improvement is the release of pent-up housing supply triggered by existing homeowners with improving equity positions,” said Mark Fleming, First American’s chief economist.

The firm’s opinions regarding underperformance are based on its’ Existing-Home Sales Capacity (EHS-C) model, which gauges whether existing-home sales are under capacity or over capacity based on current market fundamentals.

capacity-home-sales-finds-an-equilibrium

For the month of August, the EHS-C rate increased by 0.4 percent, 26,000 sales, compared to July, and it decreased by 1.1 percent compared to a year ago.

The EHS-C increased by 26,000 (SAAR) in August. An increase in the EHS-C rate indicates the market capacity for existing-home sales was pushed higher.

First American also pointed to early estimates that suggest existing-home sales activity in August rose by only 1 percent from July.

This should be considered a reflection of the fact that actual existing-home sales are beginning to approach fundamentally supported market capacity, Fleming stated, adding that as the underperformance gap narrows, similar month-to-month changes in sales activity should be expected.

Millennials and boomerang buyers — those who were foreclosed on during the crisis but have since repaired their credit — were cited in First American’s release as increasing sources of demand for existing-home sales.

Email Erik Pisor.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Use code JULY4 at checkout & save $50 on your Connect Now Bundle!Get the deal×