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TMCNet:  New Tax Code Expected to Have Little Impact on Overall Housing Market, According to First American Real Estate Sentiment Index

[March 13, 2018]

New Tax Code Expected to Have Little Impact on Overall Housing Market, According to First American Real Estate Sentiment Index

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released First American's proprietary Real Estate Sentiment Index (RESI) for the first quarter of 2018. The RESI is based on a quarterly survey of independent title agents and other real estate professionals, providing a unique gauge on the real estate market using the crowd-sourced wisdom and expertise of real estate experts.

First Quarter 2018 Real Estate Sentiment Index

  • Overall, confidence in transaction volume growth over the next 12 months decreased 0.2 percent from the fourth quarter of 2017, but increased 4.1 percent compared with a year ago.
  • Confidence in purchase transaction volume growth over the next 12 months increased 6.2 percent from last quarter, and was up 0.2 percent compared with a year ago.
  • Confidence in refinance transaction volume growth over the next 12 months decreased by 7.8 percent from last quarter, but increased 9.9 percent year over year.
  • Prices across all property types are expected to increase by 0.3 percent over the next 12 months as compared with last quarter.

Chief Economist Analysis: Title Agent and Real Estate Professional Confidence in Purchase Market Growth Increases

"Overall, optimism among title insurance agents and real estate professionals decreased slightly this quarter, likely because they indicated refinance transaction volume is expected to fall in the coming year. However, optimism for growth in purchase transaction volume increased compared with a year ago," said Mark Fleming, chief economist at First American. "Increasing mortgage rates clearly impacted optimism for the refinance market, but despite this, optimism remains strong for increased purchase demand."

Tax Code Expected to Have Little Impact on Overall Housing Market

"The impact of the new tax code on the housing market has been heavily studied and debated in academic, policy and political circles, with most agreeing that the changes remove any significant tax differences between homeowners and renters for the majority of U.S. households. But, what do the people handling real estate transactions every day think?" said Fleming. "We recently surveyed title insurance agents and real estate professionals across the nation for their perspective on how the new tax code may impact house prices, housing supply (the willingness of homeowners to sell) and housing demand."

Price Appreciation Impact

"Title agents and real estate professionals slightly leaned toward the opinion that the new tax code would not negatively impact house appreciation, but responses were split relatively equally. Of the respondents, 27 percent believe that the tax code could negatively impact house price appreciation, 35 percent believe it ill not do so, 35 percent were neutral on the topic," said Fleming. "This split opinion may be due to the fact that expensive markets with higher priced homes are more likely to be impacted by the new tax law because of the limit on the deductibility of state and local property taxes.

"Indeed, survey respondents in areas with high housing costs, such as Washington D.C., California and New York, were more likely than others to agree that the new tax code would negatively impact house price appreciation," said Fleming.

Housing Supply Impact

"Title agents and real estate professionals were also asked if the new tax law changes may hinder the supply of housing by reducing the willingness of homeowners to sell. The good news for the housing market is 46 percent, almost half of all respondents, did not believe the new tax code will significantly reduce existing homeowners' willingness to sell," said Fleming. "Another 37 percent of respondents thought there would be no impact at all. In fact, only 17 percent of respondents thought that the tax code would significantly reduce homeowners' willingness to sell."

Housing Demand Impact

"We also asked title agents and real estate professionals about the tax code's potential impact on home buyer demand. More than 75 percent of survey respondents indicated that the tax code changes would not significantly reduce demand (45 percent) or would have no impact on demand at all (32 percent)," said Fleming. "Only 23 percent of title agents and real estate professionals surveyed believed that the tax code changes will reduce demand."

Bottom Line

"When it comes to the new tax code, title agents and real estate professionals - the folks that spend their days closing real estate transactions - do not believe that the new tax code will have a meaningful, negative impact on the housing market," said Fleming. "In general, you could argue that title agents and real estate professionals surveyed believe the tax code does not meaningfully drive housing prices, supply or demand. Title agents and real estate professionals know that, when it comes to buying and selling a home, consumers consider more than just the tax consequences of homeownership."

First Quarter 2018 RESI Transaction Volume Sentiment Highlights

  • Residential: The five states with the greatest increase in title agent and real estate professional confidence in residential purchase transaction volume growth as compared with a year ago are: Kentucky (+50.0 percent), West Virginia (+40.0 percent), Maryland (+31.3 percent), Arizona (+27.4 percent) and Texas (+24.3 percent).
  • Multi-Family: The five states with the greatest increase in title agent and real estate professional confidence in multi-family purchase transaction volume growth as compared with a year ago are: Utah (+73.3 percent), Arkansas (+35.0 percent), Montana (+33.8 percent), Kentucky (+30.0 percent) and Oklahoma (+28.3 percent).

First Quarter 2018 RESI Price Growth Expectation Highlights

  • Residential: The five states in which title agents and real estate professionals had the highest predictions for residential price growth in the coming year are: Washington (+6.8 percent), Colorado (+6.6 percent), Oklahoma (+6.3 percent), Idaho (+5.5 percent) and Montana (+5.4 percent).
  • Multi-Family: The five states in which title agents and real estate professionals had the highest predictions for multi-family property price growth in the coming year are: Missouri (+7.1 percent), Tennessee (+6.7 percent), Washington (+5.6 percent), Montana (+4.6 percent) and Colorado (+4.4 percent).

What Do the RESI Number Values Mean?

Title insurance agents and real estate professionals are experts in their local real estate markets and have valuable insight. First American's proprietary Real Estate Sentiment Index is based on a quarterly survey of independent title agents and other real estate professionals, providing a unique gauge on the real estate market using the crowd-sourced wisdom and expertise of real estate experts.

Next Release

The next release of the First American Real Estate Sentiment Index will be posted in June 2018.

Methodology

The methodology statement for the First American Real Estate Sentiment Index is available at http://www.firstam.com/economics/real-estate-sentiment-index.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American's Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American's business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2017 by First American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and wealth management services. With total revenue of $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.


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