Q4 2018 Real Estate Sentiment Index

Why is Fintech Adoption Accelerating Among Real Estate Professionals?

The First American Real Estate Sentiment Index (RESI) showed that in the fourth quarter of 2018:

  • Overall, confidence in transaction volume growth over the next 12 months decreased 36.9 percent compared with a year ago.
  • Confidence in refinance transaction volume growth over the next 12 months decreased by 41.2 percent compared with a year ago.
  • Residential property prices are expected to increase by 2.2 percent over the next 12 months.
  • Residential price expectations are 1.2 percent lower than they were in Q4 2017.

Mark Explains the Real Estate Sentiment Index

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"Despite the positive outlook for the potential of fintech, optimism about the housing market decreased among title agents and real estate professionals this quarter. This is likely due to rising mortgage rates and high house prices," said Mark Fleming, chief economist at First American. "Until now, rising rates had only impacted the outlook for the refinance market. However, this quarter, there is a clear affordability squeeze on the purchase market that is contributing to the decline in sentiment."

Is Fintech the Answer to Rising Fraud in Real Estate Transactions?

According to 45 percent of the title agents and real estate professionals surveyed, the most important financial technology that helps potential home buyers accelerate transactions is secure collaboration and communication portals. Survey respondents indicated that buyers would greatly benefit from a secure platform that allows them to correspond with lenders, real estate agents, escrow officers, and other parties involved with the real estate transaction. The emphasis on security does not come as a surprise, given that one of the major trends affecting the real estate industry, real estate professionals and consumers is the rise in wire fraud.

eClosing and Remote Online Notarization Poised to Transform Home-Buying Experience

eClosing and remote online notarization capabilities are also poised to make their mark in the industry. 34 percent of title agents and real estate professionals surveyed believe that remote online notarization and eClosings will have a large impact in helping home buyers close their transactions faster and more efficiently.

Remote online notarization allows a notary to notarize documents remotely over the internet via tamper-evident digital tools, sophisticated fraud prevention technologies and live audio-video conferencing. This technology has already been accepted as an alternative to traditional in-person notarization in several states, and we anticipate seeing further uptick in 2019.

Similarly, eClosing, the electronic execution of mortgage loan closing documents in a secure digital environment, is a faster and more efficient alternative to the traditional paper-based real estate closing. eClosing can also reduce the risk of manual errors in the closing process, improving loan quality alongside efficiency.

Enter the Chat Bots

Finally, 18 percent of title agents and real estate professionals indicated that tools that help with process efficiency and automation, such as customer service chat bots, would help deliver a more efficient home-buying experience.

With more and more prospective home buyers searching for homes and information online, chat bots can help real estate agents engage potential customers in real time as they are browsing online listings, at any time of day. This technology has great potential to serve the real estate industry.

The Tipping Point?

Title agents and real estate professionals are keenly aware that fintech is transforming the industry, and plan to take full advantage of specific technologies for faster and more efficient transactions.

35 percent of title agents and real estate professionals anticipate needing software support for remote online notarization, and secure collaboration and communication portals, in the next 7-12 months. Nearly as many (30 percent) title agents and real estate professionals indicate they will require software support as soon as 3-6 months. Collectively, 65 percent of respondents intend to adopt these technologies in the next 12 months.

Streamlining time-consuming processes, as well as delivering an improved consumer experience, is top of mind for real estate professionals. Fintech is here to stay.

Purchase Market Outlook Dips

Despite the positive outlook for the potential of fintech, optimism about the housing market decreased among title agents and real estate professionals this quarter. This is likely due to rising mortgage rates and high house prices. Until now, rising rates had only impacted the outlook for the refinance market. However, this quarter, there is a clear affordability squeeze on the purchase market that is contributing to the decline in sentiment.

Title agents and real estate professionals expect residential house prices to increase by 2.2 percent in the next year. The outlook for residential price appreciation is down 2.1 percentage points from the second quarter of 2018, and 1.2 percentage points from the previous year.

Changes to house prices in part reflect the relationship between supply and demand. As housing supply increases relative to demand, price appreciation slows down. In the current state of the market, rising prices and increasing mortgage rates have reduced affordability, discouraging some first-time home buyers from entering the market. However, the expectation is that increased supply and reduced demand will slow house price appreciation.

Transaction Volume Sentiment Highlights

States with the greatest decrease in title agent & real estate professional confidence for residential purchase transaction volume growth as compared with a year ago are:

  1. Colorado (-86.7%)
  2. Utah (-70.2%)
  3. Wisconsin (-66.7%)
  4. New York (-64.2%)
  5. Tennessee (-64.0%)

Price Growth Expectation Highlights

States in which title agents & real estate professionals predicted the highest residential price increases in the coming year:

  1. Idaho (+8.0%)
  2. Maryland (+6.8%)
  3. West Virginia (+6.4%)
  4. New York (+4.6%)
  5. Virginia (+4.3%)

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.

Methodology

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) 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.

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. © 2018 by First American. Information from this page may be used with proper attribution.