First-time Homebuyers Remain Unfazed by Rising Rates

Rising mortgage rates this year will not ward off first-time homebuyers, but limited inventories may, according to results from First American’s Real Estate Sentiment Index (RESI) for the second quarter of 2018, which was released Tuesday.

Overall, title agents and real estate professionals are less optimistic about mortgage loan transaction volume with sentiment falling 10.18 percent from the first quarter to the second quarter of this year and 14.3 percent from a year ago, according to the index.

The decline in confidence was more dramatic for refinance volumes than for purchase volumes. The confidence real estate and title professionals harbored regarding growth in purchase loans over the next 12 months fell 5.8 percent from the previous quarter and 8.1 percent from a year ago, the Q2 survey found.

Confidence in growth in refinance volume plummeted 16.2 percent from the previous quarter and 22.2 percent from a year ago, but there shouldn’t be much surprise there.

“Increasing mortgage rates clearly impacted optimism for the refinance market,” said Mark Fleming, Chief Economist at First American.

Fleming also noted that “while their outlook fell for purchase transaction volume growth from last quarter it remains positive.”

In fact, title and real estate professionals remain largely positive regarding housing demand, especially among first-time homebuyers even amid indicators of rising interest rates throughout the year.

“On a national level, the title agents and real estate professionals surveyed believe that mortgage rates would need to hit 5.6 percent, 1 percentage point above the current rate, before first-time homebuyers withdraw from the market,” Fleming said, pointing out that this estimate is even higher than survey respondents’ estimate a year earlier, which suggested that a 5.4 percent mortgage rate would begin to deter first-time buyers.

“This may indicate they realize that the housing market is more resilient to mortgage rate increases than they thought a year ago,” Fleming said.

Furthermore, Fleming stated that even with anticipated rate hikes this year, mortgage rates are likely to reach but not exceed 5 percent, which according to the consensus of real estate and title professionals, should not send first-time buyers fleeing from the market.

However, despite this largely rosy outlook, title and real estate professionals did note a few impediments in the current housing market.

At the top of the list was inventory shortages, which was cited as a foremost hurdle among 35.3 percent of professionals responding to First American’s survey.

Affordability ranked second, indicated as a top concern for 30.1 percent of professionals, followed by down payment obstacles, which ranked highest among 29.3 percent of survey respondents.

“The housing market is facing its greatest supply shortage in 60 years of record keeping, according to the Federal Reserve Bank of Kansas City,” Fleming said. “The ongoing housing supply shortage will make it difficult for first-time buyers to find a home to buy, even when they are financially ready.”

The states where confidence for purchase transaction volume growth showed the greatest improvement were New Mexico (where confidence rose 45.5 percent), Arkansas (34.7 percent), New Hampshire (27.3 percent), Oklahoma (25 percent), and Alabama (21.9 percent).

Real estate and title professionals anticipate a 2.5 percent increase in home prices over the next 12 months with the greatest growth expected in Nevada (9.1 percent), Washington (8.8 percent), Missouri (6.8 percent), Tennessee (6.8 percent), and Florida (6.7 percent).