First American: Real Estate Professionals' Expectations for 2017 Dim Somewhat

First American Financial Corporation, 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 fourth quarter of 2016. 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.

Fourth Quarter 2016 Real Estate Sentiment Index

Market production, a leading indicator of market activity that combines title agents and real estate professionals’ expectations for changes in both transaction volume and prices over the coming year, decreased 3.8 percent this past quarter as compared with a year ago.

Overall, confidence for transaction volume growth over the next 12 months declined 11.8 percent from Q3 2016 and fell 3.8 percent compared with a year ago.

Confidence for growth in purchase transaction volume over the next 12 months remains positive, but declined 8 percent from last quarter and fell 8.8 percent compared with a year ago.

Confidence in refinance transaction volume growth over the next 12 months declined by 15.6 percent from last quarter, but is up 2.4 percent compared with a year ago.

Prices across all property types are expected to grow by 3.5 percent over the next 12 months, which is down from last quarter’s expectation of 4.1 percent.

Chief Economist Analysis: Seeking Certainty Again

“Overall, bullishness about transaction volumes in the coming year waned, largely driven by the decline in refinance transaction expectations,” said Mark Fleming, chief economist at First American. “Uncertainty leading into the election, as well as increasing confidence in the likelihood of Federal Reserve rate increases, tempered expectations for housing demand and lowered the overall price growth forecast.
“As the decline in overall confidence this quarter has shown, the uncertainty surrounding the Presidential election can have an impact on expectations for the housing market. This survey of title agents and real estate professionals was conducted prior to the election, and survey participants were asked for their perspective on what the outcome of the election might mean for the housing market,” said Fleming.

“Based on the responses of title agents and real estate professionals and their relative preference for Donald Trump, it appears that the uncertainty created by increased regulation and the growing complexities of compliance have many title agents and real estate professionals believing that less regulation would be more beneficial to the housing market in the long run. In other words, to the extent that each candidate represents a differentiated perspective on the role of government and regulation in the housing industry, the title agents and real estate professionals surveyed felt less is more.

“Now that Donald Trump is the President-Elect and we have more political certainty, the message of title agents and real estate professionals to the new administration is: provide more regulatory and compliance certainty and the housing market will benefit,” said Fleming.

For more discussion of the impact of uncertainty on markets and preliminary RESI results, see the original blog post – Seeking Certainty Again.

Fourth Quarter 2016 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 the vast majority of states,” said Fleming. “Only four states, Oregon, Kansas, Oklahoma, and Alabama showed decreased title agent and real estate professional expectations for residential purchase transactions over the next 12 months.

“When title agent and real estate professional responses about growth in residential and multifamily purchase transactions are combined, only two states, Kansas and Oregon, showed a decline in expectations,” 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: West Virginia (+66.7 percent), Maine (+36.9 percent), Mississippi (+24.6 percent), Colorado (+19.3 percent), and Montana (+19.1).
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 (+27.3 percent), Ohio (+21.5 percent), Maine (+21.0 percent), West Virginia (+14.3 percent), and Indiana (+13.3 percent).

Fourth Quarter 2016 RESI Price Growth Expectation Highlights

“Industrial and retail property types were the only categories with increased price growth expectations for the next year,” said Fleming. “Price growth expectations for multi-family and residential property types declined the most, by 1.4 and 1.1 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: Oklahoma (+12.4 percent), Maryland (+9.8 percent), Alabama (+9.8 percent), Illinois (+9.4 percent) and Kansas (+9.1 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: New Jersey (+8.6 percent), New Hampshire (+7.8 percent), Washington (+7.4 percent), North Carolina (+5.1 percent) and Montana (+5.0 percent).