The Struggle is Real for Millennial First-Time Homebuyers, According to First American Potential Home Sales Model

Millennials are entering the housing market, but are confronted with very few entry-level homes to buy, says Chief Economist Mark Fleming

August 23, 2017, Santa Ana, Calif.

SANTA ANA, Calif., August 23, 2017 – 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 July 2017.

July 2017 Potential Home Sales

  • Potential existing-home sales increased to a 5.82 million seasonally adjusted, annualized rate (SAAR), a 0.2 percent month-over-month increase.
  • This represents a 93.7 percent increase from the market potential low point reached in December 2008.
  • In July, the market potential for existing-home sales increased by 0.1 percent compared with a year ago, a gain of 6,000 (SAAR) sales.
  • Currently, potential existing-home sales is 541,000 (SAAR), or 9.3 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 4.7 percent or an estimated 273,000 (SAAR) sales.
  • Market potential grew by an estimated 10,000 (SAAR) sales between June 2017 and July 2017.

Chief Economist Analysis: Will the Lack of Inventory Stymie Millennial First-Time Buyers?

“Lack of supply continues to be the main story of the 2017 housing market. Just a few months ago, the difference between the actual level of existing-home sales and the market’s potential was negligible, but supply issues have become a significant impediment and are preventing the market from reaching its potential,” said Mark Fleming, chief economist at First American. “The number of existing homes listed for sale has been declining for over two years and the number of new homes added to the market has been insufficient to meet demand. Millennials are entering the housing market, but are confronted with very few entry-level homes to buy.”

Additional Quotes from Chief Economist Mark Fleming

  • “The housing market’s potential for existing-home sales improved slightly, growing 0.2 percent between June 2017 and July 2017, as the rate for a 30-year, fixed-rate mortgage remained little changed at 4.0 percent.”
  • “The lack of homes for sale in most markets has contributed to the recently growing underperformance gap between actual and potential existing-home sales. According to the National Association of Realtors (NAR), the number of homes listed for sale has declined for 25 consecutive months, dropping 7.1 percent between June 2017 and July 2017.”
  • “New residential construction, a critical source of new housing supply, is not keeping up with increasing demand. Last week, the U.S. Census Bureau reported that housing starts fell 5.1 percent in July compared to a year ago. The pace of housing starts needs to increase significantly to meet demand and alleviate inventory challenges.”
  • “Since 2009, the number of new households has increased by 5.9 million, while the net new number of housing units has only increased by 3.5 million, meaning there is a shortage of 2.4 million housing units in the United States.
  • “The lack of inventory relative to demand is driving the fast pace of price appreciation. The increases in nominal house prices, combined with mortgage rates higher than a year ago, are having a material impact on affordability. According to the First American Real House Price Index, affordability is down 10.2 percent in June 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 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 September 19, 2017 with August 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