Is the US housing market nearing full potential?

by Steve Randall24 Jan 2018
Tight supply of homes is restricting the ability of the US housing market to grow and it may therefore be nearing its full potential.

Homebuying demand remains high and interest rates are rising, and without those key things changing there is little chance of the housing shortage easing according to title insurance and real estate risk solutions firm First American.

“Faster economic growth, a healthy stock market, low unemployment and low mortgage rates are fueling substantial home-buying demand,” says Mark Fleming, chief economist at First American.

He adds that the pace of actual existing-home sales has surged in recent months and significantly narrowed the gap between actual market performance and market potential; although full potential has yet to be reached.

“Existing-home sales have been restrained by an increasingly concerning shortage of properties for sale, which puts upward pressure on house prices,” says Fleming. “The shortage of homes for sale will likely continue in 2018 and continue to push prices higher.”

First American’s Potential Home Sales Model for December shows that potential existing-home sales decreased to a 5.99 million seasonally adjusted annualized rate (SAAR), a 0.2% month-over-month decrease.

The market potential for existing-home sales increased by 1.4% compared with a year ago, a gain of 82,000 (SAAR) sales.

“As millennial demand continues to strengthen in 2018, new homebuilding and sales listings for existing homes will struggle to keep up. The pace of new homebuilding faces headwinds,” says Fleming, adding that the situation is worsened by potential sellers not listing for fear of not finding a new home.

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