SANTA ANA, CA—First American Financial Corporation, a leading global provider of title insurance, says its Existing-Home Sales Capacity (EHS-C) model decreased by 3.1% in October compared to September, meaning that the capacity for existing home sales declined that much. The measure is down 7.3% from October of last year.
The seasonally adjusted, annualized rate (SAAR) of existing-home sales capacity is up 73.6 percent from the low point of sales reached in February 2009. The EHS-C decreased by 181,500 sales (SAAR) in October.
EHS-C is down 779,000 sales (SAAR) from the most recent peak in February 2014. The current underperformance gap is an estimated 209,000 (SAAR), which is significantly less than the sales capacity gap of 1.7 million existing-home sales in February 2014.
"The housing market's capacity for existing-home sales is declining with the expectation of a Fed rate increase pre-adjusting mortgage rates and causing a slowdown in house price appreciation. Market capacity remains modestly in excess of actual sales due to leverage-assisted housing asset inflation, which is home price appreciation fueled by low mortgage rates," said Mark Fleming, chief economist, First American. "Rising mortgage interest rates and moderation in house price appreciation were the most important market fundamentals that reduced market capacity this month. Now that interest rates are pre-adjusting in response to signals from the Fed for a highly expected increase in December, demand is also declining."
Current Projection for October Existing-Home Sales and 2016 Look Ahead
Actual existing-home sales were estimated to be 5.55 million (SAAR) in September. Early forecasts for October actual existing-home sales predict a significant drop from the 5.55 million (SAAR) reported in September.
"Based on our EHS-C model, I estimate that actual existing-home sales in October will be 5.44 million (SAAR)," said Fleming. "Looking ahead to 2016, I expect existing-home sales to reach 5.5 million by the end of the year. Housing demand is expected to be increasingly dominated by the first-time homebuyer as existing homeowners will have a reduced incentive to sell in a higher rate environment."
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.
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