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| [June 12, 2018] |
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First-Time Home Buyer Demand Resilient to Rising Rates, 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 second 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.
Chief Economist Analysis: Rising Rates and the First-Time Home Buyer
"Given the strong likelihood of rising mortgage rates in 2018, many
savvy real estate market observers are curious how rising rates may
impact demand, especially among millennial first-time home buyers," said
Mark Fleming, chief economist at First American. "As part of our
quarterly RESI,
we recently surveyed title insurance agents and real estate
professionals across the nation for their perspective on how sensitive
they thought first-time homebuyers were to rising mortgage rates and at
what rate they would withdraw from the market.
"According to the title agents and real estate professionals surveyed,
nearly 87 percent of first-time home buyers were in the prime
home-buying age of 26-35, which corresponds with the millennial
generation," said Fleming.
"On a national level, the title agents and real estate professionals
surveyed believe that mortgage rates would need to hit 5.6 percent, 1.0
percentage point above the current rate, before first-time home buyers
withdraw from the market," said Fleming. "We asked the same question in
the first quarter of 2017, and title agents and real estate
professionals cited 5.4 percent as the mortgage rate at which first-time
home buyers would withdraw from the market.
"The increase in the perceived mortgage rate tipping point for
first-time home buyer demand indicates that survey respondents may see
more runway in the current housing market," said Fleming. "This may
indicate they realize that the housing market is more resilient to
mortgage rate increases than they thought a year ago.
"Even though the Fed is widely expected to raise the Federal Funds rate
multiple times this year, most forecasts suggest mortgage rates will
just reach 5 percent," said Fleming. "Based on our second quarter RESI
results, purchase market demand should not be materially impacted by any
modest increase in mortgage rates."
The No. 1 Obstacle to Home Buyers: Limited Supply
"However, while rising interest rates may not deter first-time home
buyers, lack of inventory might. When asked what the primary obstacle to
becoming a homeowner was, 35.3 percent of title agents and real estate
professionals responded with limited inventory of homes they like," said
Fleming. "The secod most cited obstacle was overall affordability (30.1
percent), followed by down payment (28.3 percent).
"The housing market is facing its greatest supply shortage in 60
years of record keeping, according to the Federal Reserve Bank of
Kansas City. The ongoing housing supply shortage will make it difficult
for first-time buyers to find a home to buy, even when they are
financially ready," said Fleming.
"Title agents and real estate professionals do not believe increasing
mortgage rates will have a significant impact on the housing market in
2018. Continued positive economic news and confidence that buyers will
remain undeterred, even if rates exceed 5.5 percent, bode well for the
real estate market in 2018," said Fleming. "However, more than a third
of title agents and real estate professionals see limited supply as the
primary obstacle to first-time home buyers."
Purchase Market Outlook Remains Positive
"Overall, optimism among title agents and real estate professionals
decreased this quarter, likely because they indicated refinance
transaction volume is expected to fall in the coming year. However,
while their outlook fell for purchase transaction volume growth from
last quarter, it remains positive," said Fleming. "Increasing mortgage
rates clearly impacted optimism for the refinance market."
"The title agents and real estate professionals surveyed expect
residential house prices to increase by 4.2 percent in the next year.
This is up 0.7 percentage points from last quarter, and 0.1 from the
previous year," said Fleming. "The expectation for further price
appreciation is not surprising, given the market
dynamics at play in the housing market today that are preventing
more existing homeowners from selling their homes and potentially
alleviating some of the supply shortage."
Second Quarter 2018 Real Estate Sentiment Index
-
Overall, confidence in transaction volume growth over the next 12
months decreased 10.18 percent from the first quarter in 2018, and
fell 14.3 percent compared with a year ago.
-
Confidence in purchase transaction volume growth over the next 12
months decreased 5.8 percent from last quarter, and fell 8.1 percent
compared with a year ago.
-
Confidence in refinance transaction volume growth over the next 12
months decreased by 16.2 percent from last quarter, and fell 22.2
percent year over year.
-
Prices across all property types are expected to increase by 2.5
percent over the next 12 months.
Second Quarter 2018 RESI: Top 5 States for Residential Transaction
Growth Outlook
-
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: New Mexico (+45.5 percent), Arkansas
(+34.7 percent), New Hampshire (+27.3 percent), Oklahoma (+25.0
percent) and Alabama (+21.9 percent).
Second Quarter 2018 RESI: Top 5 States for Residential Price Growth
Outlook
-
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: Nevada (+9.1
percent), Washington (+8.8 percent), Missouri (+6.8 percent),
Tennessee (+6.8 percent) and Florida (+6.7 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 September 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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20180612005335/en/
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