Gains in employment and income are beginning to have a positive influence on home sales, according to a report from First American Financial Corp.
First American released its Potential Home Sales model Tuesday, which showed that there were 5.78 million possible existing home sales at a seasonally adjusted, annualized rate in August. This was an increase of 62,000 sales at a seasonally adjusted, annualized rate, or 1.08% from July and up 5.9% from August 2015.
But the existing home sales market is still underperforming, albeit by a smaller amount. For August, the market underperformed its potential by 5.6% or an estimated 323,000 seasonally adjusted, annualized rate of sales. Still, this was an improvement relative to July's revised performance gap of negative 5.7%.
One major factor is gains in income and employment, which have started to have a positive impact on the market at last.
"Recent improvements in employment data and income gains are starting to play a larger role influencing home-buying power, providing a firm foundation for increased housing demand," said First American chief economist Mark Fleming in a news release. He cited Bureau of Labor Statistics and U.S. Census Bureau data that indicated improvements in the employment outlook.
These income gains won't only translate into a change in sales, though.
"These recent gains in consumer financial health not only impact housing demand, but also play a role in the Federal Open Market Committee's rate policy," said Fleming.
"With the September meeting just around the corner, some are now questioning if these positive economic indicators are enough for the Fed to raise rates. While the labor markets are improving and wages are rising, have the gains been strong enough to convince the FOMC that a rate hike is in order?"
While Fleming did not have an answer to that question, he did confirm that higher rates would be a good thing for housing.
"Rising rates will have a modest impact on housing demand, but they also signal a strengthening labor market and increased inflation pressure due to rising incomes — both unequivocally good for housing market health," he said.
