When Underachieving Isn’t a Bad Thing

When Underachieving Isn’t a Bad Thing

The U.S. housing market is performing below its potential according to First American Financial Corporation. Their January report revealed: 

  • Potential existing-home sales decreased to 5.5 million seasonally adjusted, annualized rate (SAAR). 
  • In January, the market potential for existing-home sales fell by 1.9 percent compared to a year ago, a decline of 107,000 (SAAR) sales. 

These numbers, prepared and released by First American Chief Economist Mark Fleming, may sound negative on the surface. But, this slight underperformance is an indicator of market health according to Fleming and his own description of First American's Potential Home Sales Model (PHSM). Fleming analyzes a mix of factors such as population and demographics, labor statistics, economic indicators, price trends, and financial market conditions at various intervals to provide his assessments, which are designed to offer insight when considering whether to buy or sell a home.  

Fleming explains what this means for consumers and the MLOs and Realtors who serve them: "When the actual level of existing-home sales are significantly above potential home sales the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction." 

Using the First American model and logic, today's "underperforming market" is quite healthy – as opposed to the runaway bubble that burst in the late 2000s, leaving many people with property worth less than the mortgages owed on them. The message to potential buyers is that they should not be afraid to invest in a home today because among other things, values have recovered and surpassed the 2007 price peak, according to the Mortgage Bankers Association.   

Realtor.com's Senior Economist Joe Kirchner echoes the good news saying, “We are continuing the recovery [from the housing bust]. Incomes have been going up. Wages are starting to go up.  People are saying, ‘A-ha, now I can afford a home.’" 

 

How to Communicate this to Your Prospects and Clients 

While mortgage interest rates and inventory do present some challenges, MLOs and agents should be reaching out to the all-important first-time home buyer demographic with the good news about real estate market health. It's a good idea to use some extra "TLC" when talking to Millennials and encouraging them to leave the rental ranks because it's likely the tough market times of the past affected their families to some degree. Traditional methods of engaging prospects are great, but reinforcing the benefits of homeownership with current data and educating potential clients beyond the sales pitch will set you apart from your competition.  

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