First American Says Housing Market Fundamentals Will Spur a Strong 2021

First American’s Potential Home Sales Model for November 2020 shows that strong underlying fundamentals shaped the housing market’s remarkable 2020 comeback story and, with a vaccine rollout under way, the stage is set for another strong year in 2021.

“The housing market continues to impress, even as it enters the colder months, which is traditionally real estate’s slow season,” says Mark Fleming, chief economist at First American. “After falling to a near-decade low in May due to pandemic-driven pressures, existing-home sales hit a 14-year high in October.

“In November, our measure of the market potential for existing-home sales increased 10 percent, compared with one year ago, to a 6.05 million seasonally adjusted annualized rate (SAAR) of sales,” he adds. “While the housing market rebound has been nothing short of incredible, the forces driving the rebound existed prior to the pandemic. Looking ahead, the good news for housing market potential is these fundamental forces are likely to remain constant throughout 2021.”

The 6.05 SAAR is a 3.0 percent month-over-month increase and a 73.5 percent increase from the market potential low point reached in February 1993. Currently, potential existing-home sales is 743,100 million (SAAR), or 10.9 percent below the pre-recession peak of market potential, which occurred in April 2006.

The market for existing-home sales outperformed its potential by 1.4 percent or an estimated 84,262 (SAAR) sales. The market performance gap increased by an estimated 16,847 (SAAR) sales between October 2020 and November 2020.

“How much home one can afford to buy given their income and the prevailing mortgage rate is a primary driver of home-buying demand,” Fleming notes. “Compared with one year ago, falling mortgage rates and rising incomes for those still employed resulted in nearly more 352,000 potential home sales. Consensus forecasts estimate the 30-year, fixed mortgage rate will likely average 3 percent next year, with forecasts ranging from 2.8 percent to 3.3 percent, so house-buying power is expected to remain strong in 2021 and continue to drive demand for homes.”

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