Outlook for Real Estate Market Rises Despite Supply Constraints, According to First American Real Estate Sentiment Index

Survey results also found that Fintech helps home buyers efficiently find a home, better understand mortgage loans and complete the loan application more easily, says Chief Economist Mark Fleming


December 12, 2017, Santa Ana, Calif.

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 fourth quarter of 2017. 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.

Fourth Quarter 2017 Real Estate Sentiment Index

  • Overall, confidence in transaction volume growth over the next 12 months increased 0.5 percent from the third quarter of 2017 and increased 5.3 percent compared with a year ago.
  • Confidence in purchase transaction volume growth over the next 12 months decreased 2.7 percent from last quarter, but was up 7.6 percent compared with a year ago.
  • Confidence in refinance transaction volume growth over the next 12 months increased by 4.6 percent from last quarter and increased 2.7 percent compared with a year ago.
  • Prices across all property types are expected to fall by 0.5 percentage points over the next 12 months as compared with last quarter.

Chief Economist Analysis: Title Agent and Real Estate Professional Confidence Increases from Last Quarter

“Optimism among title agents and real estate professionals increased this quarter, as they expressed confidence that transaction volume will grow in the coming year. The increase in optimism was primarily driven by the rise in expectations among survey respondents for refinance volume growth, possibly indicating confidence that low rates will continue to benefit the real estate market,” said Mark Fleming, chief economist at First American. “Supply-side challenges may be the reason for the decline in optimism for the residential purchase market.”

Industry Moves to Meet Technology Expectations of Millennial Home Buyers

“The ‘digitally native’ millennial generation has never known a world without web-based technology and the real estate finance industry is investing to meet the digital expectations of the millennial home buyer. According to data from PitchBook, over $1 billion of venture capital was invested in real estate start-up companies in 2016 and more than $800 million was invested in just the first three quarters of 2017,” said Fleming. “The question is whether all of the technology investments are making a difference to the millennial home buyer experience?

“Title agents and real estate professionals surveyed in the fourth quarter were asked if millennial home buyers are better prepared for the home buying process because of their access to real estate-related technology. The results indicate this is a polarizing topic, as not quite half of respondents (approximately 48 percent) agreed that millennial home buyers are better prepared, but more than a third (34 percent) believed that they were not,” said Fleming.

Fintech Effectiveness in Home Buying

Survey respondents also ranked the effectiveness of different types of financial technology. The following list ranks real estate-related technologies by the percentage of title agents and real estate professionals that rated the technology as either very effective or somewhat effective:

1. Online listings of properties in their market (85.2 percent)

            2. Mortgage calculators and financial planning (72.9 percent)

            3. Local market data such as market trends or crime statistics (59.4 percent)

            4. Online value estimates (56.8 percent)

            5. Educational Reference Materials (50.4 percent)

“Title agents and real estate professionals overwhelmingly rated online listings of properties in their markets as the most effective technology in preparing millennial home buyers for the purchase of their first home. Additionally, mortgage calculators and financial planning tools were deemed effective at helping borrowers better understand mortgage loans, while educational materials were deemed to be largely ineffective,” said Fleming. “Survey respondents’ ratings of online valuation tools were mixed, which may explain why approximately 60 percent believe that millennials have unrealistic expectations about home prices. Technology was deemed effective at helping home buyers more efficiently find a home to buy and determine how much they can reasonably afford to borrow, but less effective at setting appropriate expectations among millennials on home prices.”

Fintech Effectiveness in Closing Real Estate Transactions

Title agents and real estate professionals were also asked to rate how effective various technologies were in helping millennial home buyers close their real estate transactions. The following list ranks the technology by percentage of respondents who rated the technology either very effective or somewhat effective:

            1. Loan approval applications/digital mortgages (62.4 percent)

            2. eSigning documents with an in-person notary (55.0 percent)

            3. Document preparation (48.0 percent)

            4. eSigning documents with online/remote/webcam notary (47.1 percent)

“Survey respondents saw clear value in automated loan approval and electronic data collection technology to facilitate the digital mortgage and reduce the burden of document signing. Interestingly, the difference in favorable responses to the two different forms of eSigning (in-person notary or online/remote/webcam notary) highlights the current debate over the role of a notary public in the closing process,” said Fleming.

 

Fintech Steadily Enhancing the Home Buying Experience

“As more investments are made in real estate finance technology and the industry continues to grow, innovate and improve, survey respondents generally agreed that some types of financial technology are more beneficial than others and that they help borrowers find their home, better understand mortgage loans know more before they owe, and complete the loan application more easily, said Fleming. “Investments in fintech are making steady progress toward improving the home buying experience for the digitally driven millennial home buyer.”

Fourth Quarter 2017 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: Idaho (+42.9 percent), West Virginia (+40.0 percent), Ohio (+27.1 percent), Wisconsin (+19.8 percent) and Tennessee (+19.0 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: West Virginia (+103.6 percent), Idaho (+31.0 percent), Arizona (+26.7 percent), South Carolina (+17.9 percent) and Wisconsin (+15.6 percent).

Fourth Quarter 2017 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: Kentucky (+10.7 percent), Alabama (+7.1 percent), Maryland (+5.5 percent), Idaho (+5.4 percent) and Virginia (+5.1 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: Washington (+7.1 percent), New Jersey (+5.6 percent), New Mexico (+4.6 percent), California (+4.2 percent) and Maryland (+3.9 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 take place in March 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 investment advisory services. With total revenue 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 and again in 2017, First American was named to the Fortune 100 Best Companies to Work For® list. More information about the company can be found at www.firstam.com.

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