The outlook for the spring real estate market looks good, according to Mark Fleming, chief economist for First American Financial Corporation. “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,” he said.
This conclusion and others were derived by the company’s 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.
Another positive factor is the “increasing Millennial demand and confidence that buyers will remain in the market even if rates exceed 5 percent,” Fleming said, but then added a caveat. “Hopefully, there will be enough supply.”
He explained that on a national level, title agents and real estate professionals said that the mortgage rate would need to hit 5.4 percent, which is 1.3 percent above the current rate, before homebuyers would decline 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 to rising rates, 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.”
He said 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, “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,” Fleming said.
The only downside to these predictions is that Fleming thinks there will be a decrease in refinance transactions. “The positive outlook for purchase transactions stands in contrast to a further decline in expectations for refinance transactions over the next 12 months,” he said. “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.”
However, Fleming said that title agent and real estate professional expectations for growth in residential purchase transactions remain positive in every state. In residential markets, the five states with the greatest increase in 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).
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).