Tag Archives: First American Financial Corporation

Rising Rates Outweigh Impact of Strong Economy, According to First American Potential Home Sales Model

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Those who don’t sell, don’t buy either and, if you’re a first-time home buyer, it’s hard to buy what’s not for sale, says Chief Economist Mark Fleming

Santa Ana, CA – November 19, 2018 (BUSINESS WIRE) 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 Potential Home Sales Model for the month of October 2018.

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October 2018 Potential Home Sales

  • Potential existing-home sales increased to a 6.04 million seasonally adjusted annualized rate (SAAR), a 0.5 percent month-over-month increase.
  • This represents a 61.7 percent increase from the market potential low point reached in February 2011.
  • The market potential for existing-home sales decreased by 0.4 percent compared with a year ago, a loss of 24,600 (SAAR) sales.
  • Currently, potential existing-home sales is 1.25 million (SAAR), or 17.1 percent below the pre-recession peak of market potential, which occurred in July 2005.

Market Performance Gap

  • The market for existing-home sales is underperforming its potential by 6.5 percent or an estimated 391,600 (SAAR) sales.
  • The market performance gap decreased by an estimated 64,800 (SAAR) sales between September 2018 and October 2018.

Chief Economist Analysis: It’s Not the Economy, Stupid

“While the housing market continues to underperform its potential by 6.5 percent, the gap between actual existing home sales and the market potential for home sales narrowed by 1 percent in October compared with September, according to our Potential Homes Sales model,” said Mark Fleming, chief economist at First American. “The housing market has the potential to support more than 391,000 additional home sales at a seasonally adjusted annualized rate (SAAR).

“The primary culprit for the housing market’s performance gap remains severe supply shortages – home buyers can’t buy what’s not for sale,” said Fleming. “While the discussion of rising mortgage rates tends to focus on their impact on the buyer’s affordability, rising mortgage rates create a financial disincentive for existing homeowners with low mortgage rates from selling their homes. This phenomenon impacts both sides of the supply and demand dynamic – those who don’t sell, don’t buy either.

“The U.S. economy is experiencing its second longest economic expansion in history. Gross domestic product in the third quarter of 2018 increased by 3.5 percent, which exceeded economists’ predictions of 2 percent,” said Fleming. “Additionally, the economy has added jobs every month for 97 straight months, unemployment is at 49-year lows, and wages are growing at their fastest rate in nine years.

“In addition to the benefits of a strong economy, the housing market is experiencing a wave of first-time home buyer demand, as millennials age into homeownership,” said Fleming. “According to the latest release of the American Enterprise Institute’s first-time home buyer index, more than 50 percent of all homes were purchased by first-time home buyers as of July 2018.

“Despite the boost in demand and positive economic environment, the market potential for home sales has outpaced actual existing-home sales for five straight years,” said Fleming. “However, this month, the market potential for home sales also saw its first year-over-year decline in over three years. It begs the question, what is driving the decline in the market potential for existing-home sales?”

Rising Rates Cut Two Ways

“Rising mortgage rates have been detrimental to the market potential for existing-home sales, impacting the propensity to sell, as well as the ability to buy. Mortgage rates have risen nearly one percentage point in the past year, and will likely rise to 5 percent in 2019,” said Fleming. “The 30-year, fixed rate mortgage hasn’t been that high since 2009. Rising mortgage rates create a financial disincentive for existing homeowners with low mortgage rates from selling their homes.

“While the housing market benefits from increasing millennial demand for homeownership and a strong economy, rising mortgage rates reduce the propensity of sellers to sell and the buying power of potential buyers,” said Fleming. “Those who don’t sell, don’t buy either and, if you’re a first-time home buyer, it’s hard to buy what’s not for sale.”

What Insight Does the Potential Home Sales Model Reveal?

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our Potential Home Sales Model measures what home sales should be based on the economic, demographic and housing market environments.”

Next Release

The next Potential Home Sales Model will be released on December 18, 2018 with November 2018 data.

About the Potential Home Sales Model

Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, income and labor market conditions in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market. When the actual level of existing-home sales are significantly above potential home sales, the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, seasonally adjusted, annualized rates of actual existing-home sales below the level of potential existing-home sales indicate market turnover is underperforming the rate fundamentally supported by the current conditions. Actual seasonally adjusted annualized existing-home sales may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and market participant behavior. Recent potential home sale estimates are subject to revision in order to reflect the most up-to-date information available on the economy, housing market and financial conditions. The Potential Home Sales model is published prior to the National Association of Realtors’ Existing-Home Sales report each month.

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. © 2018 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 $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.

Contacts

Media Contact:
Marcus Ginnaty
Corporate Communications
First American Financial Corporation
(714) 250-3298

or

Investor Contact:
Craig Barberio
Investor Relations
First American Financial Corporation
(714) 250-5214

Loan Application Defect and Fraud Risk Drops as Home Purchases Take Higher Share of Mortgage Market

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It’s likely that all of the investment in more digitized, automated, and efficient mortgage manufacturing and underwriting technology that’s been made in recent years is beginning to pay off, says Chief Economist Mark Fleming

Santa Clara, CA – June 28, 2018 (BUSINESS WIRE) 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 Loan Application Defect Index for May 2018, which estimates the frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications. The Defect Index reflects estimated mortgage loan defect rates over time, by geography and loan type. It is available as an interactive tool that can be tailored to showcase trends by category, including amortization type, lien position, loan purpose, property and transaction types, and can provide state- and market-specific comparisons of mortgage loan defect levels.

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May 2018 Loan Application Defect Index

  • The frequency of defects, fraudulence and misrepresentation in the information submitted in mortgage loan applications decreased by 2.4 percent compared with the previous month.
  • Compared with May 2017, the Defect Index decreased by 3.6 percent.
  • The Defect Index is down 21.6 percent from the high point of risk in October 2013.
  • The Defect Index for refinance transactions remained the same compared with the previous month, and is 4.4 percent higher than a year ago.
  • The Defect Index for purchase transactions decreased by 4.6 percent compared with the previous month, and is down 7.8 percent compared with a year ago.

Chief Economist Analysis: Despite the fact that market share for purchase transactions is increasing, we’re seeing a decrease in defect and fraud risk

“By now, everyone in the mortgage industry is aware that we are entering a market that will be dominated by purchase demand for the next several years,” said Mark Fleming, chief economist at First American. “According to the latest Mortgage Bankers Association forecast, refinance transactions will make up 28 percent of total mortgages originated in 2018 and is forecasted to drop to 23 percent by 2020. This is, of course, due to the current environment of increasing mortgage rates that follows years of persistently low rates. Until last month, the average rate for a 30-year fixed mortgage had remained below 4.5 percent for 80 consecutive months. And since most homeowners have benefited from the low-rate environment, they now have little financial incentive to refinance, or sell and buy again,” said Fleming. “With mortgage rates continuing to rise, the financial value of keeping their current low-rate mortgages is likely to increase.

“The silver lining? Despite the aforementioned obstacles, consumers will continue to buy. Richard Thaler, Nobel Prize-winning economist, is famous for the analogy that we are more like Homer Simpson than Spock when making economic decisions. Lifestyle decisions will still incentivize people to buy, and sometimes that beautiful kitchen is just too hard to resist! Again, according to the Mortgage Bankers Association forecast, the purchase market is expected to grow even as mortgage rates rise, largely on the strength of first-time homebuyer demand.

“With this fact in mind, the most important news in this month’s Loan Application Defect Index (LADI) is that the Defect Index for purchase transactions decreased by 4.6 percent compared with the previous month, is down 7.8 percent compared with a year ago, and has declined almost 10 percent in just the past five months. There’s no better time to have loan application misrepresentation, defect and fraud risk on purchase transactions on the decline than when the market share of purchase transactions is rising.

“It’s likely that all of the investment in more digitized, automated, and efficient mortgage manufacturing and underwriting technology that’s been made in recent years is beginning to pay off,” said Fleming. “Now the question is, how much lower will it go?”

May 2018 State Highlights

  • The five states with the greatest year-over-year increase in defect frequency are: Arkansas (+12.0 percent), Wyoming (+7.5 percent), New Mexico (+7.5 percent), California (+5.2 percent) and Virginia (+5.2 percent).
  • The five states with the greatest year-over-year decrease in defect frequency are: South Carolina (-20.4 percent), Alabama (-17.2 percent), Vermont (-15.3 percent), Minnesota (-14.9 percent) and Louisiana (-14.0 percent).

May 2018 Local Market Highlights

  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the greatest year-over-year increase in defect frequency are: Virginia Beach, Va. (+20.0 percent), Los Angeles (+15.9 percent), Orlando, Fla. (+13.4 percent), San Diego (+12.7 percent) and Memphis, Tenn. (+8.0 percent).
  • Among the largest 50 Core Based Statistical Areas (CBSAs), the five markets with the largest year-over-year decrease in defect frequency are: Birmingham, Ala. (-22.4 percent), Austin, Texas (-19.3 percent), Pittsburgh (-16.7 percent), Raleigh, N.C. (-16.3 percent) and Minneapolis (-16.3 percent).

Next Release

The next release of the First American Loan Application Defect Index will take place the week of July 29, 2018.

Methodology

The methodology statement for the First American Loan Application Defect Index is available at www.firstam.com.

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. © 2018 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 wealth management services. With total revenue of $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.

Contacts

Media Contact:
First American Financial Corporation
Marcus Ginnaty
Corporate Communications
(714) 250-3298

First-Time Home Buyer Demand Resilient to Rising Rates, According to First American Real Estate Sentiment Index

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Continued positive economic news and confidence that buyers will remain undeterred, even if rates exceed 5.5 percent, bode well for the real estate market in 2018, says Chief Economist Mark Fleming

Santa , CA – June 12, 2018 (BUSINESS WIRE) 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 2018. 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.

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Chief Economist Analysis: Rising Rates and the First-Time Home Buyer

“Given the strong likelihood of rising mortgage rates in 2018, many savvy real estate market observers are curious how rising rates may impact demand, especially among millennial first-time home buyers,” said Mark Fleming, chief economist at First American. “As part of our quarterly RESI, we recently surveyed title insurance agents and real estate professionals across the nation for their perspective on how sensitive they thought first-time homebuyers were to rising mortgage rates and at what rate they would withdraw from the market.

“According to the title agents and real estate professionals surveyed, nearly 87 percent of first-time home buyers were in the prime home-buying age of 26-35, which corresponds with the millennial generation,” said Fleming.

“On a national level, the title agents and real estate professionals surveyed believe that mortgage rates would need to hit 5.6 percent, 1.0 percentage point above the current rate, before first-time home buyers withdraw from the market,” said Fleming. “We asked the same question in the first quarter of 2017, and title agents and real estate professionals cited 5.4 percent as the mortgage rate at which first-time home buyers would withdraw from the market.

“The increase in the perceived mortgage rate tipping point for first-time home buyer demand indicates that survey respondents may see more runway in the current housing market,” said Fleming. “This may indicate they realize that the housing market is more resilient to mortgage rate increases than they thought a year ago.

“Even though the Fed is widely expected to raise the Federal Funds rate multiple times this year, most forecasts suggest mortgage rates will just reach 5 percent,” said Fleming. “Based on our second quarter RESI results, purchase market demand should not be materially impacted by any modest increase in mortgage rates.”

The No. 1 Obstacle to Home Buyers: Limited Supply

“However, while rising interest rates may not deter first-time home buyers, lack of inventory might. When asked what the primary obstacle to becoming a homeowner was, 35.3 percent of title agents and real estate professionals responded with limited inventory of homes they like,” said Fleming. “The second most cited obstacle was overall affordability (30.1 percent), followed by down payment (28.3 percent).

“The housing market is facing its greatest supply shortage in 60 years of record keeping, according to the Federal Reserve Bank of Kansas City. 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,” said Fleming.

“Title agents and real estate professionals do not believe increasing mortgage rates will have a significant impact on the housing market in 2018. Continued positive economic news and confidence that buyers will remain undeterred, even if rates exceed 5.5 percent, bode well for the real estate market in 2018,” said Fleming. “However, more than a third of title agents and real estate professionals see limited supply as the primary obstacle to first-time home buyers.”

Purchase Market Outlook Remains Positive

“Overall, optimism among title agents and real estate professionals decreased this quarter, likely because they indicated refinance transaction volume is expected to fall in the coming year. However, while their outlook fell for purchase transaction volume growth from last quarter, it remains positive,” said Fleming. “Increasing mortgage rates clearly impacted optimism for the refinance market.”

“The title agents and real estate professionals surveyed expect residential house prices to increase by 4.2 percent in the next year. This is up 0.7 percentage points from last quarter, and 0.1 from the previous year,” said Fleming. “The expectation for further price appreciation is not surprising, given the market dynamics at play in the housing market today that are preventing more existing homeowners from selling their homes and potentially alleviating some of the supply shortage.”

Second Quarter 2018 Real Estate Sentiment Index

  • Overall, confidence in transaction volume growth over the next 12 months decreased 10.18 percent from the first quarter in 2018, and fell 14.3 percent compared with a year ago.
  • Confidence in purchase transaction volume growth over the next 12 months decreased 5.8 percent from last quarter, and fell 8.1 percent compared with a year ago.
  • Confidence in refinance transaction volume growth over the next 12 months decreased by 16.2 percent from last quarter, and fell 22.2 percent year over year.
  • Prices across all property types are expected to increase by 2.5 percent over the next 12 months.

Second Quarter 2018 RESI: Top 5 States for Residential Transaction Growth Outlook

  • Residential: The five states with the greatest increase in title agent and real estate professional confidence in residential purchase transaction volume growth as compared with a year ago are: New Mexico (+45.5 percent), Arkansas (+34.7 percent), New Hampshire (+27.3 percent), Oklahoma (+25.0 percent) and Alabama (+21.9 percent).

Second Quarter 2018 RESI: Top 5 States for Residential Price Growth Outlook

  • 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: Nevada (+9.1 percent), Washington (+8.8 percent), Missouri (+6.8 percent), Tennessee (+6.8 percent) and Florida (+6.7 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 September 2018.

Methodology

The methodology statement for the First American Real Estate Sentiment Index is available at www.firstam.com.

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 wealth management services. With total revenue of $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.

Contacts

First American Financial Corporation
Media Contact:
Marcus Ginnaty
(714) 250-3298
Corporate Communications

or

Investor Contact:
Craig Barberio
(714) 250-5214
Investor Relations