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HouseOn Thursday, May 21, the National Association of REALTORS® (NAR) will be releasing its freshest batch of existing-home sales numbers. According to the data, market capacity for existing-home sales increased 1.3 percent in April, and improvements in the labor market and a spring surge in price appreciation pushed the capacity for existing-home sales higher.

According to First American Chief Economist Mark Fleming, homeownership levels may be at their lowest level in 25 years, but an increase in March sales began to close the gap between actual existing-home sales, and market capacity.

Still, notes Fleming, the housing market continues to underperform given current market fundamentals.

“The fact that actual existing home sales volumes were lower than market capacity, yet house prices are increasing, indicates that the market is experiencing supply constraints more than demand constraints,” says Fleming. “While individual homeowner equity positions are improving, many homeowners still have a higher than market reservation price, or the price at which they are willing to put their home on the market for sale. Without the constraint of insufficient equity, many more homeowners would be willing to sell their homes, especially given the continued low interest rate environment and increased certainty in labor markets.  Since the end of the recession in 2009, the market’s capacity to support sales activity has almost doubled, but is now significantly constrained by the pent-up supply.”








First American’s proprietary Existing-Home Sales Capacity (EHS-C) model provides a gauge on whether existing-home sales are under capacity or over capacity based on current market fundamentals.

“Homeownership levels are the lowest they have been in a quarter century, and household formation growth has almost exclusively been in rental households for the last six years. Yet, this doesn’t necessarily mean that overall demand has fallen significantly. That’s because millennials, the largest generation in sheer numbers, who have been the source of a lot of the recent rental household formation, are now entering their prime first-time home-buying years. This generation is even larger than the baby-boom generation that was the generational homeownership engine of the last 25 years.”

The EHS-C increased by 1.3 percent in April compared to March and increased by 9.2 percent compared to April 2014. The seasonally adjusted, annualized rate for existing-home sales capacity is up 88.1 percent from the low point of sales reached in November 2011.

“Existing-home sales are currently below expectations because it’s hard to be a buyer if at first you can’t be a seller,” says Fleming. “Nonetheless, the big increase in actual sales in March began to close the gap between actual existing-home sales and the market capacity for existing-home sales,” Fleming concludes.

The EHS-C seasonally adjusted, annual rate of sales increased by 78,000 in April. The two largest contributors to the increase in the EHS-C model were house price growth (33,000) and improved economic conditions (28,000), and accounted for 78 percent of the change in the model. Growth in the population contributed modestly (1,000).  A modest fall in interest rates added to the overall EHS-C increase by a little more than 16,000 sales.

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