• 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.


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.

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