Market Overview

Market Potential Remains Flat, but Tight Inventory Relief May Be on the Way, According to First American Chief Economist's Potential Home Sales Model

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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 March 2017.

March 2017 Potential Home Sales

  • Potential existing-home sales decreased to a 5.5 million seasonally
    adjusted, annualized rate (SAAR), a 1.5 percent month-over-month
    decline compared to February 2017.
  • This represents an 83.3 percent increase from the market potential low
    point reached in December 2008.
  • In March, the market potential for existing-home sales grew by 0.6
    percent compared with a year ago, an increase of 31,000 (SAAR) sales.
  • Currently, potential existing-home sales is 853,000 (SAAR), or 15.5
    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
    2.3 percent or an estimated 129,000 (SAAR) sales.
  • Market underperformance has improved 47 percent compared to this time
    last year. In March 2016, the housing market for existing-home sales
    was underperforming its potential by 275,000 (SAAR) sales.

Chief Economist Analysis: Housing Demand Remains Strong for the Start
of the Spring Buying Season

"Despite higher mortgage rates, the potential for home sales increased
on an annual basis driven by steady income and job growth, along with a
surge in building permits," said Mark Fleming, chief economist at First
American. "While it may be a little late for this spring, the increase
in building permits is a welcome sign that some relief may be in sight
for the inventory shortages that are holding back many markets from
realizing their full potential this spring."

Additional Quotes from Chief Economist Mark Fleming

  • "The housing market's potential for existing-home sales held steady in
    March, growing 0.6 percent over the past 12 months, despite increasing
    interest rates, in part fueled by strong building permit activity and
    continued employment gains as more people return to the workforce."
  • "According to the National Association of Realtors (NAR), housing
    inventory increased slightly, from 3.5 months' supply in January to
    3.8 months' supply in February. However, upward pressure on house
    prices persists, as current homeowners remain reluctant to list their
    homes for sale out of concern they will not be able to find a home to
    buy."
  • "While affordability
    declined slightly in January
    , it is not affecting consumer demand.
    Rather, in the fourth quarter of 2016 owner-occupied home sales
    increased the fastest outside the top 25 largest markets, as
    first-time homebuyers are pursuing home purchases in less expensive
    markets, as the
    American Enterprise Institute (AEI)/First American National Housing
    Market Index
    showed."
  • "Strong consumer demand combined with continued healthy wage growth,
    which increased 2.7 percent over the past 12 months, continues to
    support a positive outlook for the spring home buying market."

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 we
believe a healthy market level of 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 May 23, 2017
with April 2017 data.

About the Potential Home Sales Model

Background information on the First American Potential Home Sales model
is available here.

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 investment advisory services. With revenues of $5.6 billion in 2016,
the company offers its products and services directly and through its
agents throughout the United States and abroad. In both 2016 and 2017,
First American was recognized by Fortune® magazine as one of
the 100 best companies to work for in America. More information about
the company can be found at www.firstam.com.

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