The market underperformed its potential by 1% percent, or an estimated 56,600 sales, due to short supply.

Despite the housing market’s show of strength this summer amid economic turmoil sparked by the coronavirus pandemic, it has yet to reach its full potential because of ongoing supply restraints. The monthly First American Potential Home Sales Model for July reported potential existing home sales increased to a 5.59 million seasonally adjusted annualized rate, a 1.9 percent month-over-month increase. This represents a 61.3 percent increase from the market potential low point reached in February 1993. The report said the market potential for existing-home sales increased 4.0 percent compared with a year ago, a gain of nearly 215,800 sales. However, current potential existing-home sales remains 17.7 percent below the pre-recession peak of market potential (which occurred in April 2006), at 1.21 million units. First American Chief Economist Mark Fleming said the market for existing-home sales underperformed its potential by 1.0 percent, or an estimated 56,600 sales. The market performance gap increased by an estimated 16,000 sales between June and July. “You can’t buy what’s not for sale,” Fleming said. “Record-low rates and millennials continuing to age into their prime home-buying years has boosted demand, but a lack of housing supply remains a challenge.” This lack of supply is hindering what should be a stronger housing market, Fleming said. “It is clear that the domestic economy continues to feel the pain inflicted by the coronavirus pandemic. Yet the housing industry, at least for now, continues its impressive V-shaped rebound,” Fleming, said. “Weekly purchase applications have surpassed their levels from one year ago for 12 straight weeks as potential buyers respond to record low interest rates.”

Source: First American