Mortgage Rates Deliver Surprise Boost to Demand and Supply in 2019, According to First American Real Estate Sentiment Index
Business Wire 18-Jun-2019 7:00 AM
—Title agents and real estate professionals indicate home buyers
encouraged by unexpectedly lower mortgage rates in 2019 – a tailwind
helping to boost demand and inspire existing homeowners to sell their
homes, says Chief Economist Mark Fleming—
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 2019. The
RESI is based on a bi-annual 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: Lower Rates Spurring Demand, But
Affordability Remains a Leading Obstacle
"In late 2018, many experts believed the housing market in 2019 would
behave very similar to the 2018 housing market, characterized by rising
demand for homes and limited supply driving house price appreciation,
while mortgage rates continued their steady ascent," said Mark Fleming,
chief economist at First American. "Then, December 2018 brought a sudden
drop in mortgage rates, a decline which has persisted into the first
half of 2019. As part of our bi-annual First
American Real Estate Sentiment Index (RESI),
we recently surveyed title insurance agents and real estate
professionals across the nation for their perspective on how the
unexpectedly low mortgage rates have impacted home buyers and sellers in
their market.
"According to 57 percent of title agents and real estate professionals
surveyed, the unexpectedly low mortgage rates of 2019 have increased
home buyer demand in their market. In fact, only 15 percent disagreed
with this sentiment," said Fleming. "However, despite lower mortgage
rates boosting affordability and stimulating demand, 40 percent of
survey respondents indicated that affordability is the primary obstacle
to becoming a homeowner – this is not surprising as house prices
nationally continue to grow, albeit
at a slower pace in 2019. The next highest-rated obstacles to
becoming a homeowner were the limited inventory of homes they like (30
percent) and down payment (22 percent).
"Affordability has overtaken the lack of supply as the primary obstacle
to homeownership, according to a year-over-year review of survey
results," said Fleming. "When we asked this question a year ago, survey
respondents (35.3 percent) slightly favored the limited inventory of
homes as the primary obstacle over overall affordability (30.1 percent).
Down payment (28 percent) followed closely behind in the second-quarter
2018 survey.
"Title agents and real estate professionals no longer view limited
inventory as the primary obstacle to becoming a homeowner," said
Fleming. "The main burden, affordability, confirms the strong sellers'
market conditions from 2018 have continued in many markets in early
2019, as demand outpaces supply and prices continue to rise."
Is Improving Supply Helping Homeowners Escape the Prisoner's Dilemma?
"Throughout 2017 and 2018, homeowners faced a ‘prisoner's dilemma,' a
situation where many homeowners were ‘imprisoned' in their current home
by the fear of not finding a home to buy and the fear of losing their
historically low mortgage rate," said Fleming. "According to our survey
of title insurance and real estate professionals, homeowners may finally
be on the verge of escaping the ‘prisoner's dilemma.'
"Not only have concerns over limited supply eased as an obstacle to
homeownership, homeowners appear to be more willing to list their homes
for sale because they are more confident in finding a home to buy,
according to our survey of title insurance and real estate
professionals," said Fleming. "When asked what had the greatest
influence on the decision by homeowners to list their homes for sale
this spring, most title agents and real estate professionals (37
percent) indicated the supply of alternative homes at the desired price
point has increased.
"Survey respondents also cited that the rate for a new mortgage is
competitive with existing mortgage rates (32 percent), creating another
crack in the prisoner's dilemma for homeowners. In the first quarter of
2019, mortgage rates fell to 4.37 percent. While still higher than one
year ago, that is a significant decline from the fourth quarter 2018
rates of 4.78 percent," said Fleming. "Mortgage rates have fallen even
further during the second quarter of 2019. As the spread between
homeowners' existing rates and new mortgage rates narrows, the less
‘rate-locked' homeowners are.
"However, even though there are some signs that homeowners are more
willing to list their homes for sale, supply constraints remain the
biggest concern for homeowners by a wide margin, according to our survey
findings," said Fleming. "When asked what was the greatest influence on
the decision by homeowners to not list their homes for sale this
spring, the biggest reason was the fear of not being able to find a home
to buy (69 percent).
"Feeling less ‘rate-locked' has encouraged more homeowners to sell, but
many still fear not being able to find something better to buy. To sell,
or not to sell. This is the dilemma that existing homeowners face," said
Fleming.
Millennials Dominate the First-Time Home Buyer Market
"The millennial generation, those between the ages
of 23 to 38, have been the primary
drivers of homeownership growth since 2018. Title agents and real
estate professionals surveyed confirmed this data, with 87 percent of
respondents indicating first-time home buyers were in the prime
home-buying age of 26-35," said Fleming. "This is consistent with our
survey findings from the spring of 2018, indicating millennials remain
the primary source of first-time home buyers in 2019. Indeed, we expect
millennials to continue driving the housing market for the foreseeable
future."
Purchase and Refinance Market Outlook Improve
"Title agents and real estate professionals had a positive outlook for
the overall purchase market in the second quarter of 2019, likely due to
declining mortgage rates and a strong labor market," said Fleming. "As
might be anticipated, unexpectedly lower mortgage rates boosted the
outlook for growth in refinance transactions compared with one year ago.
"Title agents and real estate professionals are more optimistic about
price appreciation growth now than they were at the end of 2018, but
slightly less optimistic than a year ago. Survey respondents expect
residential house prices to increase by 3.8 percent in the next year,"
said Fleming. "The outlook for price appreciation is up 1.7 percentage
points from the fourth quarter of 2018, and down 0.4 percentage points
from the previous year.
"Changes to house prices in part reflect the relationship
between supply and demand. As demand increases relative to supply,
price appreciation increases," said Fleming. "Slower house price
appreciation and declining mortgage rates in 2019 have increased
affordability and boosted demand. Housing supply, however, has been
slower to respond. Increased demand and limited supply will likely
result in faster house price appreciation again in 2019."
Second Quarter 2019 Real Estate Sentiment Index
-
Overall, confidence in residential purchase volume growth over the
next 12 months decreased 5.0 percent compared with a year ago.
-
Confidence in refinance transaction volume growth over the next 12
months increased 72.5 percent compared with a year ago.
-
Residential property prices are expected to increase by 3.8 percent
over the next 12 months.
-
Residential price expectations are 0.4 percent lower than they were
one year ago.
"Overall, optimism among title agents and real estate professionals
increased this quarter compared to the fourth quarter of 2018, likely
due to declining mortgage rates and the slowdown in house price
appreciation," said Fleming. "In fact, the unexpectedly low mortgage
rates fueled the largest yearly growth in refinance sentiment since the
inception of the survey."
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
bi-annual 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 December 2019.
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. © 2019 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; banking, trust and
wealth management services; and other related products and services.
With total revenue of $5.7 billion in 2018, the company offers its
products and services directly and through its agents throughout the
United States and abroad. In 2019, First American was named to the Fortune 100
Best Companies to Work For® list for the fourth consecutive
year. More information about the company can be found at www.firstam.com.
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