Existing home sales have declined approximately 30% since mortgage rates started rising in the fall of 2021, according to First American’s Potential Home Sales Model for June 2023. But home sales may have now reached their bottom and are ready to settle at a new normal somewhere between the breakneck pace of 2020 and 2021 and the low pace of earlier this year, according to Mark Fleming, chief economist at First American.
First American’s model measures what a healthy market level of home sales should be, based on economic, demographic and housing market fundamentals.
In June, potential existing-home sales decreased to a 5.31 million seasonally adjusted annualized rate (SAAR), a 0.23% month-over-month decrease. The market potential for existing-home sales decreased 2.8% compared with a year ago, a loss of 152,400 (SAAR) sales.
The current housing market is unique because more than 90% of homeowners in the U.S. have locked in a mortgage rate below 6%, noted Fleming.
“As mortgage rates return to a not-so-new-normal of over 6%, those homeowners have a financial disincentive from selling, keeping a lid on the primary source of housing supply, and you can’t buy what’s not for sale,” Fleming said.
“The good news is that home sales have likely already bottomed, and the pace of sales will begin to settle into a new normal below the breakneck pace of 2020 and 2021, but also not as low as earlier this year. The hope is that affordability will improve in the second half of 2023, so that the pace of sales can be not too hot, not too cold, but just right.”
First American said its potential home sales model 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.
