Key Highlights

  • December 2019 existing home sales exceeded housing market potential by +1.2%
  • December 2019 saw largest inventory decline, -12%, in nearly three years, according to com
  • Is there a relationship between low mortgage rates and low inventories?

December 2019 saw existing-home sales exceed the housing market potential by +1.2%. This market potential increase positioned the housing market potential above the 2018 rate, according to First American’s Potential Home Sales Mode (PHMS).

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Mark Fleming, First American’s chief economist, said, “According to our PHSM, housing market potential increase +1.7% in December 2019 relative to the previous month, and growth of +2.6% y/y, we saw an increase of 134,460 potential existing-home sales.”

Despite this increase, potential existing-home sales remain below -21.3% the pre-recession peak of March 2004.

Fleming attributes this increase to a boost in consumer house-buying power. Consumer house-buying power came in +12.5% higher in December 2019 than one year ago and jacked up market potential by 316,000 potential home sales.

Fleming said, “The house-buying power surge was driven by the combined impact of lower mortgage rates, which were -0.92% lower…than they were a year ago, and a +2.4% increase in annual household income.”

The good news associated with low mortgage rates? Increased house-buying power. The bad news? Low mortgage rates could threaten future growth as increased demand for affordable homes continues to weaken supply.

There is a “duality of low mortgage rates,” according to Fleming. “Low mortgage rates and increased house-buying power will continue to boost demand (along with Millennials entering their prime home buying years)…on the other hand, those persistently low rates (under 5% since the end of the Great Recession – nearly a decade ago) will discourage existing homeowners from selling, pushing up tenure length and limiting the inventory of homes available for sale.”

Turns out there are no house-buying benefits for owners who already have a low mortgage rate. The only way these existing homeowners with low mortgage rates can increase their household buying power is to increase their household income growth.

Look to home tenure length as the result…pre-recession tenure length was less than six years on average. In December 2019, home tenure length rose to nearly twelve years, an +8% increase from December 2018.

Does Fleming expect the housing market potential to decline due to low mortgage rates and low inventories due to higher home tenure length? Not necessarily. “…the lack of housing supply has been the norm for several years, yet the housing market has endured.”


Thanks to HousingWire’s Alcynna Lloyd and Julie Falcon and First American.

Also read: “Gangbusters” Jobs Report Bodes Well for Housing, 2020’s Hottest and Coolest Markets, What’s Happening with Bidding Wars?

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