Q2 2017 Real Estate Sentiment Index
Outlook for Real Estate Market Surges in Second Quarter Amid Strong Demand
The First American Real Estate Sentiment Index (RESI) showed that in Q2 2017:
- Confidence for transaction volume growth over the next 12 months increased 9.1 percent from Q1 2017 and decreased 4.8 percent compared with a year ago.
- Confidence for growth in purchase transaction volume over the next 12 months increased 9.1 percent from last quarter and fell 1.1 percent compared with a year ago.
- Confidence in refinance transaction volume growth over the next 12 months increased by 18.5 percent from last quarter and fell 9.1 percent compared with a year ago.
- Prices across all property types are expected to drop by a modest 0.18 percent over the next 12 months compared to last quarter.
Mark Explains the Real Estate Sentiment Index0:41
"Overall, confidence among title agents and real estate professionals in transaction volume growth in the coming year swelled this quarter, surging 9.1 percent. The increase was driven by the rise in expectations for both purchase transactions and refinance transactions amid persistent low mortgage rates," said Mark Fleming, chief economist at First American. "Strong Millennial demand and continued positive economic conditions combined with widespread tight supply are causing a dilemma in the market, as homeowners balance the benefit of selling their home in today's sellers' market with the risk of becoming a buyer in the sellers' market."
Transaction Volume Sentiment Highlights
States with the greatest increase in title agent & real estate professional confidence for residential purchase transaction volume growth as compared with a year ago are:
- Louisiana (+24.1%)
- Texas (+15.6%)
- New York (+12.9%)
- Missouri (+11.4%)
- Tennessee (+9.7%)
States with the greatest increase in title agent & real estate professional confidence for multi-family purchase transaction volume growth as compared with a year ago are:
- New Mexico (+66.7%)
- Louisiana (+58.7%)
- Colorado (+53.1%)
- Mississippi (+50.0%)
- Oregon (+40.0%)
Price Growth Expectation Highlights
States in which title agents & real estate professionals predicted the highest residential price increases in the coming year:
- Kentucky (+8.6%)
- Washington (+8.0%)
- Michigan (+6.1%)
- Maryland (+6.0%)
- New York (+5.8%)
States in which title agents & real estate professionals predicted the highest multi-family price increases in the coming year:
- Kentucky (+5.9%)
- Maryland (+5.8%)
- Washington (+5.8%)
- Colorado (+5.4%)
- New York (+4.9%)
Millennials' Home-buying Challenges Similar to Previous Generations
In contrast to the perception that Millennials are eschewing homeownership for the ease and flexibility of renting, this quarter's survey provided more evidence that Millennials are increasingly participating in the housing market. Title agents and real estate professionals estimated that the average age of the first-time homebuyers that they work with is between 26 and 30 (55 percent), or 31-35 (32 percent). In fact, combined, 26-to-35 year-olds accounted for 87 percent of first-time buyers, according to survey participants.
"Despite the rising rate environment and limited inventory, title agents and real estate professionals validated that Millennials represent the majority of first-time homebuyers today. Interestingly, according to title agents and real estate professionals surveyed, Millennials are making the choice to own primarily based on the desire to improve their financial situation and to accommodate having children. Like generations before them, saving for the down payment is the biggest obstacle. When Millennials buy a home may be different, but why Millennials buy homes is arguably the same as it's always been," said Fleming.
Title agents and real estate professionals were asked to identify the primary motivation behind first-time homebuyers' deciding to buy a home. The most frequently cited reason was "buying is a better financial investment than renting" at 41 percent. Starting a family and having children (23 percent), and increased income or a new job (23 percent) were the next most frequently cited reasons. The decision to get married was the least cited motivation. While these results potentially discount the importance of lifestyle choices in the decision to become a homeowner, clearly, starting a family still plays an important role in the decision.
As with generations past, the primary challenge of saving the all-important down payment remains the single most important impediment to achieving the goal of homeownership. Title agents and real estate professionals most frequently cited saving for a down payment as the primary obstacle to those that decide to become a homeowner (38 percent). Overall affordability was the second most cited obstacle (31 percent), followed by the lack of inventory in the market (19 percent) and access to credit (12 percent). Perhaps surprisingly, current market conditions and credit terms ranked low as impediments to homeownership, according to the title agents and real estate professionals surveyed.
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.
The First American Real Estate Sentiment Index (RESI) measures title agent sentiment on purchase and refinance transaction volume and price changes across multiple property types, as well as title agent sentiment on current industry issues. The RESI is calculated for each question as the sum of the positive responses minus the sum of the negative responses divided by two and times the total number of responses plus 50, resulting in an index that varies from 0 (all negative sentiment) to 50 (neutral sentiment) to 100 (all positive sentiment). A RESI value above 50 indicates increasingly positive sentiment and a RESI value below 50 indicates increasingly negative sentiment. Aggregated purchase and refinance sentiment indices are created by using a property-type, stock-weighted average of each underlying sentiment index.
The overall national sentiment index is a loan purpose market share-weighted average of the aggregate purchase and refinance sentiment indices. Aggregated national price expectations are property-type, state stock weighted. Results are only reported when a sufficient number of survey responses are available to produce valid results.
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 investment advisory services. With revenues of $5.6 billion in 2016, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016, First American was recognized by Fortune® magazine as one of the 100 best companies to work for in America. More information about the company can be found at www.firstam.com.
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.
Next Release Date
The next release of the First American Real Estate Sentiment Index will be posted in September 2017.