Market Overview

Rising Rates Outweigh Influence of Economic Momentum on Market Potential, According to First American Chief Economist's Potential Home Sales Model


American Financial Corporation
leading global provider of title insurance, settlement services and risk
solutions for real estate transactions, today released First American's
proprietary Potential
Home Sales model
for the month of February 2017.

February 2017 Potential Home Sales

  • Potential existing-home sales decreased to a 5.7 million seasonally
    adjusted, annualized rate (SAAR).
  • This represents an 89.8 percent increase from the market potential low
    point reached in December 2008.
  • In February, the market potential for existing-home sales fell by 0.5
    percent compared with a month ago, a decline of 28,000 (SAAR) sales.
  • Currently, potential existing-home sales is 658,000 (SAAR) or 11.5
    percent below the pre-recession peak of market potential, which
    occurred in July 2005.

Market Performance Gap

  • The market for existing-home sales is underperforming its potential by
    2.5 percent or an estimated 142,000 (SAAR) of sales.
  • Last month's revised underperformance gap was 4.5 percent or 260,000
    (SAAR) sales.

Chief Economist Analysis: Millennial First-Time Homebuyer Demand
Remains Strong Despite Sellers' Market

"Steady income and job growth combined with increased building permit
activity has increased the market potential for home sales on an annual
basis," said Mark Fleming, chief economist at First American. "Demand
from Millennials and first-time homebuyers remains robust despite the
strong spring sellers' market and rising rates, resulting in a shrinking
underperformance gap, as the market aligns with its potential."

Additional Quotes from Chief Economist Mark Fleming

  • "The housing market's potential for existing-home sales grew 2.4
    percent over the past 12 months, despite increasing interest rates.
    Strong building permit activity and an increasing number of people
    returning to the workforce helped to increase market potential."
  • "Limited supply, which remained steady at 3.6 months, continues to put
    upward pressure on prices, as current homeowners are caught in a
    ‘matching trap,' where they are reluctant to list their homes for sale
    out of concern they will not find a home to buy."
  • "Nevertheless, the outlook for further increases in market potential
    remains bullish, as strong job and income growth, and increasing
    demand from Millennials and first-time home buyers in general, bode
    well for the housing market."
  • "Additionally, according to the most recent First
    American Real Estate Sentiment Index
    , there is increasing
    confidence among real estate professionals that buyer demand will
    remain strong, even if rates exceed 5 percent."

What Insight Does the Potential Home Sales Model Reveal?

"When considering the right time to buy or sell a home, an important
factor in the decision should be the market's overall health, which is
largely a function of supply and demand. Knowing how close the market is
to a healthy level of activity can help consumers determine if it is a
good time to buy or sell, and what might happen to the market in the
future. That's difficult to assess when looking at the number of homes
sold at a particular point in time without understanding the health of
the market at that time," said Fleming. "Historical context is
critically important. Our potential home sales model measures what we
believe a healthy market level of home sales should be based on the
economic, demographic, and housing market environments."

Next Release

The next Potential Home Sales model will be released on April 20, 2017
with March 2017 data.

About the Potential Home Sales Model

Background information on the First American Potential Home Sales model
is available here.


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. © 2017 by First
American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE:FAF) is a leading
provider of title insurance, settlement services and risk solutions for
real estate transactions that traces its heritage back to 1889. First
American also provides title plant management services; title and other
real property records and images; valuation products and services; home
warranty products; property and casualty insurance; and banking, trust
and investment advisory services. With revenues of $5.6 billion in 2016,
the company offers its products and services directly and through its
agents throughout the United States and abroad. In both 2016 and 2017,
First American was recognized by Fortune® magazine as one of
the 100 best companies to work for in America. More information about
the company can be found at

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