DataMarkets & Economy

Why are existing-home sales underperforming?

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Existing-home sales as measured by the National Association of Realtors are underperforming the rate supported by current market conditions, according to First American’s latest Potential Homes Sales model.

The gap between actual existing-homes sales and their potential for the month of September is an estimated 453,000 sales or 7.8 percent, “due to supply constraints caused by existing homeowners’ reluctance to list their homes for sale for fear of not being able to find a home to buy,” said the report.

“Additionally, Hurricanes Irma and Harvey may negatively impact actual existing-home sales regionally, but only temporarily. Based on data from previous natural disasters, homebuying usually rebounds as households recover from the disruption of natural disasters,” the report added.

About the potential home sales model

First American’s potential home sales model measures what they believe is a healthy market level of home sales based on the demographic, economic and housing market environments.

Potential home sales measures existing-homes sales based on the historical relationship between existing-home sales and U.S. population demographic data, U.S. income and labor market conditions, U.S. housing market price trends and financial market conditions.

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When existing-home sales are significantly above potential home sales, an increased likelihood of market correction occurs because the  turnover rate is not supported by the market. When the SAAR of existing-home sales is below the level of potential existing-home sales, it means market turnover is underperforming the rate supported by current conditions.

Email Fabiana Gordon.