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Housing market underperforms by 273K sales

The U.S. housing market has the potential to sell around six million homes per year, but has been underperforming, according the title insurer First American.

“The lack of supply is the primary culprit,” First American’s Chief Economist Mark Fleming said. “The inventory of homes for sale in most markets remains historically tight, yet demand continues to rise as millennials further age into homeownership.”

According to the company’s modeling, the market for existing-home sales is falling short of its potential for 6.04 million home sales by an estimated 273,000 sales annually. The National Association of Realtors (NAR) will release its estimate for existing home sales for March on Monday. First American is forecasting that NAR's existing sales reading will clock in at an annualized pace of just under 5.8 million units.  

Fleming said that many homeowners are “rate-locked” and hesitant to sell as mortgage rates rise. Homeowners are also having a hard time finding a suitable move-up home, and so are choosing to remain in their existing home rather than sell their property.

“Potential sellers face a prisoner’s dilemma, a situation in which individuals don’t cooperate with each other, even though it seems in their best interest to do so,” Fleming said.

“If sellers all choose to sell, they would all benefit as buyers because they would increase the inventory of homes available and alleviate the supply shortage,” he continued. “However, the risk of selling if others don’t in a market with a shortage of inventory prevents many existing homeowners from selling. The result is prices are further bid up by competition for the increasingly short supply.” 


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