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Housing Dynamics Closely Mirror Those of the Early 1980s

First American Data & Analytics, a division of First American Financial Corporation, has released its proprietary Potential Home Sales Model covering the month of September 2023 which found that potential existing-home sales decreased to 5.37 million seasonally adjusted annualized rate (SAAR), a 0.03% month-over-month decrease. 

This number also represents a 53.9% increase from the market potential low, which is benchmarked to February 1993. 

The market potential for existing-home sales increased 0.3 percent compared with a year ago, a gain of 14,700 (SAAR) sales. Currently, potential existing-home sales is 1,424,000 (SAAR), or 21.0 percent, below the peak of market potential, which occurred in April 2006. 

“The average 30-year, fixed mortgage rate trended upward throughout September, approaching 8% in early October. Higher mortgage rates have a dual impact on the housing market – reducing affordability for buyers and strengthening the rate lock-in effect for potential sellers,” said Mark Fleming, Chief Economist at First American. “The combination of reduced affordability and an even stronger rate lock-in effect is likely to continue to suppress home sales because you can’t buy what’s not for sale, even if you can afford it." 

“Existing-home sales in August were just above a 4 million seasonally adjusted annualized rate (SAAR), but leading indicators, such as purchase mortgage applications, signal that sales may dip below 4 million for the first time since the depths of the Great Financial Crisis, between July and October 2010,” said Fleming. “But the housing market today is very different from the housing market during the aftermath of the previous housing boom. Today’s housing market isn’t anything like the housing market of the mid-2000s – the housing market today is not overbuilt, nor is it driven by loose lending standards, sub-prime mortgages, or homeowners who are highly leveraged. However, the current housing market is similar to the market of the 1980s. History doesn’t repeat itself, but it often rhymes.” 

So where does the market go from here? 

“The housing market did rebound from the 1980s, but it took some time. Inflation and mortgage rate stabilization were key. Because mortgage rates have increased further in October, we expect the housing recessionary conditions to linger in the near-term,” said Fleming. “However, industry forecasts predict that mortgage rates will moderate if the Federal Reserve stops further monetary tightening and provides investors with more certainty. Mortgage rate stability, even if the stabilization occurs with rates at a higher level, is the key to an eventual housing recovery.” 

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at [email protected].

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