Data shows housing market is slowing to a pace that’s more in line with historical norms.

First American released its Potential Home Sales Model for the month of July 2022. The Potential Home Sales Model measures what the healthy market level of home sales should be based on economic, demographic, and housing market fundamentals. “According to our Potential Home Sales Model, the market potential for existing-home sales in July was estimated to be 5.45 million at a seasonally adjusted annualized rate (SAAR), down 0.2 percent compared with last month, and 14.4 percent lower than one year ago,” said Mark Fleming, chief economist at First American. “It’s clear that the housing market has slowed from its pandemic-era frenzy, as buyers adjust to the new reality of higher mortgage rates. Excluding the spring of 2020 when the housing market came to a brief halt, existing-home sales in June declined to their lowest level since February 2019. The decline is not a crash, but rather an adjustment to a not-so-new normal. Relative to one year ago, median household income increased by approximately 4.7 percent in July, but it was not enough to offset the affordability loss from the 2.5 percentage point increase in the 30-year, fixed mortgage rate. The result was a 23 percent decline in house-buying power, which was one of the primary culprits behind cooling demand. Sellers have largely been staying put as they are hesitant to let go of their low interest rate mortgages. Since home sellers are also prospective home buyers, homeowners choosing not to sell reduced housing market potential by 84,000 sales compared with one year ago. However, homeowners today have record levels of equity, and as their equity grows, they are more likely to consider using that equity to purchase another home that better suits their needs. The housing market is adjusting to a not-so-new normal. Slowing sales are a symptom of a housing market that’s coming off a two-year pandemic-influenced frenzy and settling into a pace that’s more in line with historical norms,” concluded Fleming. 

Source: First American Financial Corporation