—Recent mortgage applications data indicates
a thaw in the housing market is upon us, says Chief Economist Mark
Fleming—
First American Data & Analytics, a leading national
provider of property-centric information, risk management and
valuation solutions and a division of First American Financial
Corporation (NYSE: FAF), today released First American Data &
Analytics’ proprietary Potential Home Sales Model for the month of
November 2023. The Potential Home Sales Model measures what the
healthy market level of home sales should be based on economic,
demographic and housing market fundamentals.
November 2023 Potential Home Sales
For the month of November, First American Data & Analytics
updated its proprietary Potential Home Sales Model to show
that:
- Potential existing-home sales increased to a 5.30 million
seasonally adjusted annualized rate (SAAR), a 1.3 percent
month-over-month increase.
- This represents a 52.1 percent increase from the market
potential low point reached in February 1993.
- The market potential for existing-home sales increased 1.5
percent compared with a year ago, a gain of 80,000 (SAAR)
sales.
- Currently, potential existing-home sales is 1,486,400 (SAAR),
or 21.9 percent, below the peak of market potential, which occurred
in April 2006.
Chief Economist Analysis: Largest Monthly Growth in Housing
Market Potential in a Year
“In the month of October, existing-home sales hit the lowest
level since 2010 as a result of the higher mortgage rate
environment. Rising mortgage rates reduce affordability, all else
held equal, for buyers and strengthen the rate lock-in effect for
potential sellers. However, mortgage rates declined in November,
igniting cautious optimism in the industry,” said Mark Fleming,
chief economist at First American. “In fact, our Potential Home
Sales Model, which measures what a healthy market for home sales
should be based on the economic, demographic and housing market
environments, increased by 1.3 percent in November – that’s the
highest monthly growth since December 2022. The question remains:
will the recent decline in mortgage rates translate into growth in
existing-home sales?”
Lower Mortgage Rates Drive the Market Forward
“The average 30-year, fixed mortgage rate declined to 7.4
percent in November from a recent peak of 7.6 percent in October.
The nearly 0.2 percentage-point monthly decline in mortgage rates
combined with a 0.3 percent increase in median household income
fueled a 2 percent ($6,500) month-over-month increase in
house-buying power,” said Fleming. “Mortgage rates have fallen
further in December to approximately 7 percent. Holding median
household income constant at its November level, a 0.4 percentage
point decline in the average 30-year, fixed mortgage rate boosts
house-buying power by approximately $13,000.
“One way to project whether lower mortgage rates will result in
a boost in sales is by tracking mortgage applications. Most home
buyers purchase a home with a mortgage, and filling out a purchase
mortgage application is an early step in the home-buying process,”
said Fleming. “An increase in purchase mortgage applications,
therefore, precedes an uptick in home sales as these applications
reflect growing demand in the market.
“According to purchase mortgage application data from the
Mortgage Bankers Association (MBA), average mortgage applications
in the month of November increased 5 percent compared with October.
Additionally, data from the first two weeks of December indicates a
nearly 8 percent increase from November,” said Fleming. “A simple
analysis based on the historical relationship between mortgage
applications and existing-home sales indicates that home sales
should accelerate and approach 4 million seasonally adjusted
annualized sales (SAAR) as 2023 comes to a close.”
What’s Next?
“Existing-home sales of 4 million SAAR is still low from a
historical perspective, but it represents a move in the right
direction. Heading into 2024, existing-home sales may continue to
drift higher if mortgage rates fall further or stabilize. However,
it’s unlikely that existing-home sales will increase dramatically,
as the bulk of existing homeowners will remain rate locked-in, even
if rates drift closer to 6 percent,” said Fleming. “The road back
to a market that is not too hot, not too cold, but just right will
be a slow one, but recent mortgage applications data indicates a
thaw in the housing market is upon us.”
Next Release
The next First American Data & Analytics Potential Home
Sales Model will be released on January 18, 2024 with December 2023
data.
About the First American Data & Analytics Potential Home
Sales Model
Potential home sales measures existing-homes sales, which
include single-family homes, townhomes, condominiums and co-ops on
a seasonally adjusted annualized rate based on the historical
relationship between existing-home sales and U.S. population
demographic data, homeowner tenure, house-buying power in the U.S.
economy, price trends in the U.S. housing market, and conditions in
the financial market. When the actual level of existing-home sales
are significantly above potential home sales, the pace of turnover
is not supported by market fundamentals and there is an increased
likelihood of a market correction. Conversely, seasonally adjusted,
annualized rates of actual existing-home sales below the level of
potential existing-home sales indicate market turnover is
underperforming the rate fundamentally supported by the current
conditions. Actual seasonally adjusted annualized existing-home
sales may exceed or fall short of the potential rate of sales for a
variety of reasons, including non-traditional market conditions,
policy constraints and market participant behavior. Recent
potential home sale estimates are subject to revision to reflect
the most up-to-date information available on the economy, housing
market and financial conditions. The Potential Home Sales model is
published prior to the National Association of Realtors’
Existing-Home Sales report each month.
Disclaimer
Opinions, estimates, forecasts and other views contained in this
page are those of First American’s Chief Economist, do not
necessarily represent the views of First American or its
management, should not be construed as indicating First American’s
business prospects or expected results, and are subject to change
without notice. Although the First American Economics team attempts
to provide reliable, useful information, it does not guarantee that
the information is accurate, current or suitable for any particular
purpose. © 2023 by First American. Information from this page may
be used with proper attribution.
About First American Data & Analytics
First American Data & Analytics, a division of First
American Financial Corporation, is a national provider of
property-centric information, risk management and valuation
solutions. First American maintains and curates the industry’s
largest property and ownership dataset that includes more than 8
billion document images. Its major platforms and products include:
DataTree®, FraudGuard®, RegsData®, First American TaxSource™ and
ACI®. Find out more about how First American Data & Analytics
powers the real estate, mortgage and title settlement services
industries with advanced decisioning solutions at
www.FirstAmDNA.com.
About First American
First American Financial Corporation (NYSE: FAF) is a
premier provider of title, settlement and risk solutions for real
estate transactions. With its combination of financial strength and
stability built over more than 130 years, innovative proprietary
technologies, and unmatched data assets, the company is leading the
digital transformation of its industry. First American also
provides data products to the title industry and other third
parties; valuation products and services; mortgage subservicing;
home warranty products; banking, trust and wealth management
services; and other related products and services. With total
revenue of $7.6 billion in 2022, the company offers its products
and services directly and through its agents throughout the United
States and abroad. In 2023, First American was named one of the 100
Best Companies to Work For by Great Place to Work® and Fortune
Magazine for the eighth consecutive year and was named one of the
100 Best Workplaces for Innovators by Fast Company. More
information about the company can be found at www.firstam.com.
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