The First American Real Estate Sentiment Index (RESI) for the second quarter of 2016 found title agent expectations for growth in purchase and refinance transactions across all property types in the year ahead are 17.3 percent more positive than they were during the first quarter of 2016.
Quarter-over-quarter, title agents’ confidence in purchase market growth increased 12.9 percent, and 23.2 percent for refinance transactions. In regard to real estate prices, title agents now are predicting 4 percent price growth over the next 12 months, which is a slight drop from the first-quarter prediction of 4.6 percent annualized price growth.
The report stated title agents are less likely to believe that the TILA-RESPA Integrated Disclosure (TRID) rule changes will cause closing delays during the spring home-buying season than they were in the first quarter. Title agents still believe that TRID will cause delays, but that feeling has decreased by nearly 20 percent since the first quarter, which indicates the marketplace is adapting to the new process and forms, according to Fleming.
Title agents continue to report their cost of closing a loan has increased, citing an average increase of $184 per transaction in the second quarter. However, they also note that the increases are not necessarily because of TRID (also known as the Know Before You Owe mortgage initiative) directly, but a result of the varied approaches to rule implementation taken by lending institutions.
These variances, they say, are forcing title agents to create different closing procedures for each lender with which they work, contributing to increased costs for title agents, according to Fleming. The increase in cost per transaction because of this differs dramatically by geography. Title agents in New Mexico indicated the highest increase, at $313, while title agents in Indiana indicated the lowest increase at $58.
“The independent title agents surveyed feel that consumer understanding of the closing process is gradually improving,” Fleming said in a news release accompanying the index. “While sentiment regarding this remains negative, there was a 74.7 percent improvement over the past quarter in how well title agents believe consumers’ understanding of the closing has improved due to Know Before You Owe,” Fleming said.
“Change is difficult, and the implementation of the new Know Before You Owe processes and forms was a challenge for title agents as well as lenders, requiring significant investments in new technology and time,” Fleming said. “Based on our survey, title agents’ belief that the new rules are benefiting consumers is improving and that closing delays are declining. We are all getting used to the new normal.”
For purchase transactions, title agents expressed broad-based confidence about the growth in volume across all property types over the next year. Nationally, expectations for residential purchase transactions were the most bullish. Among the mix of commercial property types, title agents were most positive regarding increases in office property transaction volume, a change from the previous quarter, when their outlook for growth in industrial property volume was the most positive.
“The outlook for refinance transaction volume among title agents is modestly positive, but much less so than for purchase volume. However, this modestly bullish outlook is a significant change from the previous quarter, when title agents said they expected refinance volume to go down, possibly due to a reduced expectation of higher mortgage interest rates in the coming year,” Fleming said.
Title agent expectations for market production, a potential leading indicator of real estate market direction, increased 2.5 percent from the first quarter of 2016.
“Market production is a metric that combines title agent expectations for transaction volumes and price changes over the coming year,” Fleming said. “Increased confidence in the growth of purchase and refinance volume in the second quarter helped to offset expectations that price increases will cool to a 4 percent growth level.”
Fleming said the expectations for price growth likely was driven by a shortage of inventory in the spring and continued low mortgage rates.
“State by state, title agents remained strongly positive regarding residential price increases, with the exception of agents in New Mexico who expect declining prices,” Fleming said. “Agents were similarly confident in their expectations for multi-family property price increases over the next year, with the exception of title agents in Mississippi. Title agent expectations varied more by state for other commercial property types (retail, office and industrial).”
The five states with the highest predictions for residential price increases in the coming year are: Tennessee (+9.8 percent), Kentucky (+8.8 percent), Idaho (+8.7 percent), Wisconsin (+8.5 percent) and Utah (+8 percent).The five states with the highest predictions for multi-family price increases in the coming year are: Kentucky (+8.3 percent), Rhode Island (+7.8 percent), Florida (+7.2 percent), Idaho (+7 percent) and Tennessee (+6.3 percent).