First American recently released its Potential Home Sales Model for the month of April 2020.

April 2020 Potential Home Sales

• Potential existing-home sales decreased to a 4.68 million seasonally adjusted annualized rate (SAAR), a 5.1% month-over-month decrease.
• This represents a 39.4% increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales decreased 12.6% compared with a year ago, a loss of nearly 672,230 (SAAR) sales.
• Currently, potential existing-home sales is 2.05 million (SAAR), or 30.4% below the pre-recession peak of market potential, which occurred in March 2004.

Market Performance Gap

• The market for existing-home sales outperformed its potential by 19.6% or an estimated 916,160 (SAAR) sales.
• The market performance gap increased by an estimated 244,580 (SAAR) sales between March 2020 and April 2020.

Chief Economist Analysis: Housing Market Potential Falls to Lowest Point Since August 2012

“The coronavirus pandemic continued its historic assault on the domestic and global economy in April, and the housing market did not go unscathed,” Fleming said. “Typically, the hot spring home-buying season would be in full swing in April, but pandemic-related impacts, including shelter-in-place orders, the rapid surge in unemployment, and declining consumer confidence chilled a promising spring for the housing market.

“Our Potential Home Sales Model reflects the significant impact of the pandemic on the market potential for existing-home sales, which fell to the lowest level since August 2012. Housing market potential decreased 5.1% in April relative to the previous month, and fell 12.6% year-over-year, a decline of 672,230 (SAAR) potential existing-home sales,” Fleming said. “Credit tightening remained the largest drag on housing market potential for the second month in a row. However, rising tenure length is a growing headwind for housing market potential as well, as potential sellers keep their homes off the market during this period of uncertainty.”

Pandemic Strengthens Supply Squeeze

“Similar to the previous month, tightening credit had the largest year-over-year negative impact (831,310 potential home sales) on potential home sales. Lenders tightened their lending criteria to account for the greater likelihood of forbearance and delinquency. However, rising tenure length also had a strong impact, reducing the potential for existing-home sales by nearly 350,000 sales,” Fleming said. “Tenure length, the average length of time someone lives in their home, reached record levels in April, just exceeding 12 years, according to DataTree by First American. As increasingly fewer people list their homes for sale, housing supply tightens, reducing housing market potential.

“The pandemic has strengthened the long-run trend in tenure length, which has been increasing since the aftermath of the housing market crash. In the months preceding the pandemic, the pace of tenure length growth had slowed, falling to 7.6% year-over-year in February, but has since accelerated to 8.5% in March and April,” Fleming said. “The main reason? Existing homeowners are hesitant to list their homes for sale in uncertain economic times, and some are concerned about the potential health risks associated with showing homes to buyers. Existing-home listings fell by 44% compared with one year ago in April, which is typically one of the busiest months for existing-home sales. As more homeowners are reluctant to list their homes for sale amid the pandemic, the supply of homes available to potential home buyers continues to dwindle. You can’t buy what’s not for sale.”

Looking Ahead, Housing Market Shows Signs of a Thaw

“Despite the pandemic, showing activity has rebounded in May after reaching a trough in mid-April. Mortgage applications for home purchases have also rebounded, increasing for four consecutive weeks, and are now only down 10% relative to one year ago,” Fleming said. “Last month at this time, they were down 35% relative to the same week one year ago. Historically low mortgage rates, as well as new technology that allows buyers to house-hunt from afar, seems to have lifted the housing market from April’s low point. Strict credit standards and rising tenure length will continue to be headwinds to the potential for existing-home sales, but the housing market is showing early signs of resilience amid the pandemic.”