Existing-home sales in this current market are mostly being driven by the “Five Ds” – death, divorce, diplomas, downsizing, and diapers – according to a report from First American.
The firm’s Existing-Home Sales Outlook Report “nowcasts” existing-home sales based on the historical relationship between sales, demographic trends, house-buying power, and the prevailing financial and economic conditions. Currently, First American is forecasting March existing-home sales will rise 1.7% compared with February, but remain approximately 16% lower compared with March 2023.
But unlike housing markets of the past, this market isn’t being driven by low mortgage rates or low home prices – the current trickle of sales is coming mainly from people who are facing life events that require them to sell their homes and move.
“Today’s housing market faces a persistent trio of challenges,” says Odeta Kushi, deputy chief economist at First American, in a blog post. “The mortgage rate lock-in effect, limited inventory of homes for sale, and constrained affordability continue to dampen sales activity and will likely remain headwinds for the remainder of 2024.”
“Yet, despite these challenges, the existing-home sales outlook has increased for two consecutive months,” Kushi says. “While financial considerations are important in the decision to buy or sell a home, so too are lifestyle choices and events, such as the five Ds – death, divorce, diplomas, downsizing, and diapers.”
Regardless of the five Ds, limited inventory will continue to constrain existing-home home sales.
“While ‘life happens’ events may spur some buyers and sellers, it’s not enough to fuel the housing market to more normal sales levels,” Kushi says. “Existing homes represent the majority share of inventory, and nearly 90 percent of existing homeowners are locked into rates below 6 percent and financially disincentivized from selling.”
“In the housing market, the seller and the buyer are, in many cases, the same,” Kushi adds. “To buy a new home, you have to sell the home you already own. The rate lock-in effect will likely weaken if the Federal Reserve cuts rates and mortgage rates fall. Even then, mortgage rates aren’t likely to decrease enough to ‘unlock’ most homeowners, so in the interim, the driving force behind sales activity will remain the five Ds.”