The market for existing-home sales is underperforming its potential by 2.8%, according to First American Financial Corp.'s Potential Home Sales model for May.
Existing-home sales fell short from their potential by a seasonally adjusted annualized rate of 156,000 sales in May, First American reported Thursday, an improvement over April's gap of 232,000. First American's model gauges whether existing-home sales are falling short of or exceeding their long-run potential based on market fundamentals.
The market potential for existing-home sales rose 0.9% from April, or 51,000 sales on a seasonally adjusted annualized basis, but decreased 4.8% from last year. For May, potential existing-home sales reached a rate of 5.63 million.
Constricting home sales are high prices and tight supply, which are mitigated in part by the low interest rate environment.
"The current low-rate environment continues to provide relief to potential homebuyers in the form of increased leverage and home-buying power," said First American chief economist Mark Fleming in a news release.
And whether that low-rate environment continues will be determined more by international factors than domestic ones, Fleming added.
"[The Federal Open Market Committee's] decision not to raise the federal funds rate…will have little impact on the health of the housing market and housing affordability," Fleming said. "In fact, FOMC decisions are currently nonevents for the housing market. In the coming months, global uncertainty due to events like Brexit or other forms of geo-political unrest may have more influence on mortgage rates than any actions taken by the Fed."
