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
September 19, 2017, Santa An, Calif.
First 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 decrease.
- 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 environments.”
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 www.firstam.com.