First-Time Home Buyers ‘Resilient’ to Rising Rates

First-time home buyers may be deterred by a lack of affordable housing inventory, but they are not phased by rising interest rates, said First American Financial Corp., Santa Ana, Calif.

The company’s quarterly Real Estate Sentiment Index said 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.

First American Chief Economist Mark Fleming said the chief obstacle to first-time homebuyers is inventory, or lack thereof. “The housing market is facing its greatest supply shortage in 60 years of record keeping,” he 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 report noted overall confidence in transaction volume growth over the next 12 months decreased 10.18 percent from the first quarter 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 to 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.

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

Fleming added 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. “Purchase market demand should not be materially impacted by any modest increase in mortgage rates,” he said.

The report said 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). States with 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).