Compressed inventory and lackluster homebuyer sentiment thanks to tight credit availability has hindered the housing market from performing at its full potential in April, according to First American Financial Corp.
First American's Potential Home Sales model gauged that the market for existing-home sales was falling short of its potential by 4.1%, which equates to an estimated seasonally adjusted annualized rate of 232,000 homes. While the market is depressed, April's results were an improvement from March when the market was falling 7.6% or 418,000 sales short of potential.
The month-over-month increase stems from gains made in the Midwest and the Northeast, according to First American chief economist Mark Fleming.
"Although the market has moved closer to its potential, low inventories of homes for sale and tighter credit availability continue to constrain market activity, even with improving labor, wage and mortgage rate conditions," Fleming said in a news release.
The tightening in credit, which has led to depressed homebuyer sentiment, might stem from the TILA-RESPA integrated disclosures, Fleming noted, citing the Mortgage Bankers Association's
"The timing of the decrease suggests that lenders began implementing tighter lending standards in response to the implementation of the 'Know Before You Owe' rule, particularly for loan products that the private secondary market is rejecting more frequently for 'Know Before You Owe' compliance issues," Fleming said.
"Counteracting this trend is a loosening of lending standards targeted at first-time homebuyers, such as the increasingly popular GSE low-down-payment program."
