AgentMarkets & Economy

Housing’s underperformance gap closes

Release of pent-up supply primary reason
  • 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.

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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. 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-...