Improved Real Estate Outlook Suggests Strong Spring 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 the First American’s proprietary Real Estate Sentiment Index (RESI) for the first 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.

First Quarter 2017 Real Estate Sentiment Index

• Overall, confidence for transaction volume growth over the next 12 months increased 0.4 percent from Q4 2016 and increased 0.63 percent compared with a year ago.
• Confidence for growth in purchase transaction volume over the next 12 months increased 6.5 percent from last quarter and 3.7 percent compared with a year ago.
• Confidence in refinance transaction volume growth over the next 12 months declined by 5.7 percent from last quarter and fell 2.5 percent compared with a year ago.
• Prices across all property types are expected to grow by 2.5 percent over the next 12 months, which is up from last quarter’s expectation of a 1.7 percent increase.

Chief Economist Analysis: The Bulls and the Bears in Spring Home Buying

“Overall, bullishness about transaction volumes in the coming year increased, largely driven by the rise in purchase transaction expectations,” said Mark Fleming, chief economist at First American. “Overall, year-end confidence in the healthy trajectory of the economy increased purchase transaction expectations, but the likelihood of higher mortgage rates further tempered refinance prospects.

“The increase in overall transaction volume confidence this quarter suggests that title agents and real estate professionals feel the spring home buying season looks promising. However, the positive outlook for purchase transactions stands in contrast to a further decline in expectations for refinance transactions over the next 12 months,” said Fleming.

Rising Rates Not Expected to Slow Down Demand This Spring

“Given the strong likelihood of rising mortgage rates in 2017, title agents and real estate professionals were asked to assess how sensitive they thought first-time homebuyers were to rising mortgage rates and at what rate they would withdraw from the market,” said Fleming.

“Despite some regional disparities, title agents and real estate professionals do not expect increasing mortgage rates to have a significant impact on the housing market this spring. Continued good economic news, increasing Millennial demand and confidence that buyers will remain in the market even if rates exceed 5 percent bode well for 2017 real estate,” said Fleming. “Hopefully, there will be enough supply.

“On a national level, title agents and real estate professionals said that the mortgage rate would need to hit 5.4 percent, 1.3 percent above the current rate, before homebuyers declined to enter the market. On a state-by-state level, title agents and real estate professionals viewed home buyers in Arkansas as the least sensitive, believing buyers would not leave the Arkansas market until rates hit 6.2 percent. North Dakota title agents and real estate professionals reported the lowest threshold rate for buyers to withdraw from the market at 4.5 percent,” said Fleming. “Even with multiple expected rate increases by the Fed this year, most forecasts suggest mortgage rates will remain below 5 percent, so based on these results, the purchase demand this spring should not be materially impacted by any modest increase in mortgage rates.

“This remained true for Millennials and first-time homebuyer demand as 57 percent of the title agents and real estate professionals surveyed agreed that Millennial first-time homebuyer demand will rise regardless of a mortgage rate increase. On a regional level, title agents and real estate professionals in the Midwest were the most confident that first-time homebuyer demand will rise regardless of rate increases, said Fleming. “In contrast, the Northeast was the most pessimistic, with title agents and real estate professionals in New York, Vermont, Maine, Connecticut, and New Jersey on average disagreeing that first-time homebuyer demand will rise regardless of rate increases.

First Quarter 2017 RESI Transaction Volume Sentiment Highlights

“When aggregated by state, title agent and real estate professional expectations for growth in residential purchase transactions remain positive in every state,” said Fleming.

• Residential: The five states with the greatest increase in title agent and real estate professional confidence for residential purchase transaction volume growth as compared with a year ago are: Louisiana (+53.1 percent), Mississippi (+35.6 percent), New Mexico (+33.0 percent), New Hampshire (+27.7 percent), and Idaho (+26.3 percent).
• Multi-Family: The five states with the greatest increase in title agent and real estate professional confidence for multi-family purchase transaction volume growth as compared with a year ago are: New Mexico (+50.0 percent), Idaho (+46.7 percent), Virginia (+43.1 percent), Arkansas (+40.0 percent), and Texas (+33.9 percent).

First Quarter 2017 RESI Price Growth Expectation Highlights

“Multi-family property types show the smallest expectation for price growth, an increase of 0.40 percentage points since last quarter,” said Fleming. “Outlook for price growth for residential and industrial property types increased the most, by 1.28 and 0.84 percentage points respectively, quarter-over-quarter.”

• 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: New Mexico (+8.0 percent), South Carolina (+5.9 percent), Washington (+5.8 percent), Idaho (+5.4 percent), Tennessee (+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: Tennessee (+5.2 percent), New Mexico (+5.2 percent), South Carolina (+4.9 percent), Washington (+4.9 percent), and Alabama (+4.5 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 July 2017.

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 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.