Market Overview

Hurricanes Harvey and Irma Expected to Impact Home Sales in the Short Term, According to First American Potential Home Sales Model


—Hurricanes expected to impact home sales in the short-run, as
loan closings are rescheduled and some borrowers with pending contracts
withdraw their bids on damaged homes, says Chief Economist Mark Fleming—

American Financial Corporation
(NYSE:FAF), a 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 August 2017.

August 2017 Potential Home Sales

  • Potential existing-home sales decreased to a 5.71 million seasonally
    adjusted, annualized rate (SAAR), a 1.3 percent month-over-month
  • This represents an 89.9 percent increase from the market potential low
    point reached in December 2008.
  • In August, the market potential for existing-home sales decreased by
    3.7 percent compared with a year ago, a loss of 221,000 (SAAR) sales.
  • Currently, potential existing-home sales is 656,000 (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
    3.6 percent or an estimated 206,000 (SAAR) sales.
  • Market potential fell by an estimated 72,000 (SAAR) sales between July
    2017 and August 2017.

Chief Economist Analysis: Hurricanes Harvey and Irma Add to Housing
Inventory Woes

"While the full scope of the damage from hurricanes Harvey and Irma is
still being assessed, it is clear the impact on the housing market will
be considerable. The Houston metropolitan area and the impacted Florida
counties alone accounted for 8.0 percent of all U.S. existing home sales
in 2016," said Mark Fleming, chief economist at First American. "We
expect existing-home sales to decrease in the short-run, as loan
closings are rescheduled and some borrowers with pending contracts
withdraw their bids on damaged homes. As recovery efforts move forward,
the pre-hurricane shortage of construction workers will likely hamper
the process of rebuilding efforts, and further limit the pace of new
home construction, as the limited labor supply shifts away from new home
construction to rebuilding efforts."

Additional Quotes from Chief Economist Mark Fleming

  • "The housing market's potential for existing-home sales declined
    between July 2017 and August 2017, as home
    building permits
    , a leading indicator of future housing stock,
    have declined in recent months."
  • "The market performance gap widened as actual existing-homes sales
    declined in July because of increasingly tight supply. According to
    the National
    Association of Realtors (NAR)
    , the number of homes listed for sale
    has declined for 26 consecutive months, dropping 9.0 percent over the
    past 12 months."
  • "The combination of home price appreciation driven by inventory
    shortages and the rise in mortgage rates over the year prior has had a
    meaningful impact on affordability. According to the First
    American Real House Price Index
    , affordability is down 9.3 percent
    in July compared to a year ago."

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 home
sales should be based on the economic, demographic, and housing market

Next Release

The next Potential Home Sales model will be released on October 20, 2017
with September 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 total revenue 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 2016 and again in
2017, First American was named to the Fortune 100 Best Companies
to Work For® list. More information about the company can be
found at

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