Has The Game Changed? Millennials, and the Economics of Housing January, 2017 First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American Financial Corporation is a parent holding company that does business through its operating subsidiaries. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American Financial Corporation is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action. #FirstAmEcon @mflemingecon 2016 2015 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
It ain t what you don t know that gets you into trouble. It s what you know for sure that just ain t so. - Mark Twain
Is Something Restricting the American Dream? Homeownership Rate (%) 70 69 68 67 66 65 64 63 62 Jan-65 Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 Source: US Census Bureau, Q3 2016 3 @mflemingecon #FirstAmEcon
Demographics Drives Rental Demand Household Formation by Occupancy Type (Year-Over-Year Inventory Growth, %) 6 5 4 3 2 1 0-1 -2-3 -4 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Source: Census Bureau, FRED Q3 2016 4 @mflemingecon #FirstAmEcon Recession Rented Owned Rented Three Year Moving Average
Renting Millennials Homeownership Rate for Households Under 35 44 42 40 38 36 34 1982 1987 1992 1997 2002 2007 2012 Source: Census Bureau CPS/HVS, 2015 5 @mflemingecon #FirstAmEcon
Over or Under Achieving GenY Homeownership 1.6 1.4 Marriage 1.2 Income 1 0.8 Children Employment Source: Census Bureau, 2013-2014 6 @mflemingecon #FirstAmEcon Education Baby Boomers Generation X Millennials
Borrow More and Pay More? Average Loan Term (Years) and Payment-to-Income Ratio 15 14 13 12 11 10 9 8 7 6 1992 1995 1998 2001 2004 2007 2010 2013 average repayment term Mean P/I (Right Axis) Median P/I (Right Axis) Source: Federal Reserve Board of Governors SCF, 2013 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 7 @mflemingecon #FirstAmEcon
Education Attainment Percent Share of Population with Bachelors Degree or Higher 45 40 35 30 25 20 15 10 5 0 20 26 32 38 44 50 56 62 68 Baby Boomers Gen X Millennials Source: ACS IPUMS, 2015 @mflemingecon #FirstAmEcon
With Age Comes Wisdom and Homeownership Percent of Homeowners 100 90 80 70 60 50 40 30 20 10 0 25 35 45 55 65 Source: IPUMS CPS, Asian Black Hispanic White @mflemingecon #FirstAmEcon
10 @mflemingecon #FirstAmEcon
Forecasting Housing s Future Sunny with a few cloudy periods today and Thursday, which will be followed by Friday -The Province (Vancouver, B.C.) 6/21/78
Potential Still Rising But Recent rate Increases Expected To Taper Future Demand Existing and Potential Home Sales ('000s, SAAR) 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 Recessions Existing Sales Potential Sales Source: NAR, FRB St. Louis, First American Calculations, September 2016 12 @mflemingecon #FirstAmEcon
Demographics Drives Building Potential Single and Multifamily Housing Starts ('000s,Units) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 13 @mflemingecon #FirstAmEcon Source: US Census Bureau, FRED, Nov. 2016 Recessions 5+Units 1-4 Units
Housing's Quarter-Century Tailwind 30-Year Fixed Rate, Effective Federal Funds Rate, % NSA 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan-63 Sep-69 May-76 Jan-83 Sep-89 May-96 Jan-03 Sep-09 May-16 Source: Freddie Mac, FRED, Jan. 2016 14 @mflemingecon #FirstAmEcon Recessions Mortgage Rate (%) Federal Funds Rate (%)
Real Prices Remain Well Below Historic Levels House Prices (SA, Jan. 2000 = 100) 200 180 160 140 120 100 80 60 Source: Standard & Poors, First American, October 2016 @mflemingecon #FirstAmEcon Recessions Real Unadjusted
Real Prices Remain Low In Most Markets Source: FHFA, Freddie Mac, Census, FirstAmEcon, October 2016 16 @mflemingecon #FirstAmEcon
First-Time Buyers Rebounding First-Time Homebuyer Market Share and Transaction Volume Index (%, Volume- April 2013 = 100) 180 170 160 150 140 130 120 110 100 90 54% 53% 52% 51% 50% 49% 48% Overall (right) Loan Volume (left) Source: AEI International Center on Housing Risk, August 2016 @mflemingecon #FirstAmEcon
@mflemingecon #FirstAmEcon
Residential Purchase Transactions Expected To Grow Source: First American Calculations, Q4 2016 @mflemingecon #FirstAmEcon
Year Ahead Price Expectation For All Property Types Source: First American Calculations, Q4 2016 @mflemingecon #FirstAmEcon
First American s Office of Economic Research FirstAm.com/Economics @mflemingecon #FirstAmEcon
Has the Game Changed? 2017 Housing Market Forecast and Homebuyer Trends January 11, 2017 National Association of REALTORS Research Department Jessica Lautz Managing Director, Survey Research and Communications @JessicaLautz #NARHBSat35
Myths About Who Are Buying Homes and Why Gen Y want to remain renters (or live w/mom & dad forever) Exodus from suburbs and into the city Baby Boomers downsizing and swarming Florida
Just the Facts, Ma am By 2045 majorityminority country Millennials have overtaken Baby Boomers Same share of singles as married couples
Share of Home Sales Vacation Buyers, 16% Primary Home Buyers, 65% Investors, 19% 2016 Investment and Vacation Home Buyers Survey
Profile of Home Buyers and Sellers Annual survey of recent home buyers (purchased in the last year) Report started in 1981 Largest sample size of its kind Longest running survey of its type 95 percent confidence level with a confidence interval of plus-orminus 1.32%.
$110,000 Rise in Household Income $100,000 $98,000 $90,000 $88,500 $80,000 $70,000 $74,600 $66,300 $72,000 $60,000 $54,800 $50,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 All Buyers First-time Buyers Repeat Buyers Profile of Home Buyers and Sellers
Return of Single Females 90% 80% 81% 70% 66% 60% 50% 40% 30% 20% 22% 17% 10% % 1981 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 8% 7% 2% Married Couple Single Female Single Male Unmarried Couple Other Profile of Home Buyers and Sellers
First-time Buyers Rising But Suppressed 60% 50% 50% 40% 35% 30% 30% 32% 20% Historical norm is 40% among primary residence buyers 10% % 1981 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Profile of Home Buyers and Sellers
Millennials Face Hurdles Flat wages Rise student loan debt Rise in rents Rise in home prices
Affordability Problems Increasing 67% homeowners good time to buy vs 56% renters & 48% those who live w/someone 65% think it would be difficult to qualify for a mortgage West region, renters, younger, and under $50,000 household income Housing Opportunities and Market Experience (HOME)
Lack of Affordable New 100% Homes 80% 60% 40% 20% 0% 28% 18% 14% 1981 1987 1991 1995 2000 2003 2005 2007 2009 2011 2013 2015 Profile of Home Buyers and Sellers Previously Owned New
Non-Homeowners: Student Debt Delays Home Purchase 80% 70% 71% 60% 50% 40% 30% 20% 10% 5% 2% 13% 10% % Yes No impact Helped buy home Don't know Don't want to own a home 2016 Student Loan Debt and Housing Report
Homeowners: Debt Delays Selling & Buying Another Home Don't know 36% No, student loan debt did not delay selling home 33% Yes, too expensive to move & upgrade to a new home 18% Yes, problems w/ student loans have impacted credit for for a future mortgage 7% Yes, underwater-student loan debt limited ability to pay more on home 6% % 10% 20% 30% 40% 2016 Student Loan Debt and Housing Report
Homeownership Unchanging to the American Dream 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% % 89% 11% Housing Opportunities and Market Experience (HOME) Yes No
Median Age of Home 55 50 Buyers 52 45 40 44 35 30 25 36 31 32 29 1981 1985 1987 1989 1991 1993 1995 1997 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 All Buyers First-time Buyers Repeat Buyers
Multi-Generational Home Buying Caretaking parents Want larger home to pool money Spend time w/parents 1 in 10 Bought Multi-Gen Home Children 18+ never left Cost savings Children 18+ moving back in 2016 Profile of Home Buyers and Sellers
Prior Living Arrangement of First-time Buyers 00% 15% 12% 21% 80% 4% 60% 40% 80% 81% 74% 20% 0% 1989 1993 1995 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Rented an apartment or house Lived with parents, relatives or friends Other Owned previous residence Rented the home buyer ultimately purchased Profile of Home Buyers and Sellers
Share of Downpayment 1989-2016 25% 25% 23% 20% 20% 18% 15% 14% 10% 10% 9% 10% 5% 6% % 1989 1991 1993 1995 1997 1999 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 All Buyers First-time Buyers Repeat Buyers Profile of Home Buyers and Sellers
Difficulty with the Mortgage Application Process All Buyers 14% 23% 43% 20% First-time Buyers 13% 27% 36% 24% Repeat Buyers 15% 21% 48% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Much more difficult than expected Somewhat more difficult than expected Not difficult/no more difficult than expected Easier than expected Profile of Home Buyers and Sellers
Buyers with Student Loan Debt First-time All Buyers Buyers Repeat Buyers Have student 27% 40% 19% loan debt Under $10,000 21% 20% 23% $10,000 to 26 25 28 $24,999 $25,000 to 23 25 21 $49,999 $50,000 to 14 14 13 $74,999 $75,000 or 16 16 16 more Median $25,000 $26,000 $24,200 Profile of Home Buyers and Sellers
Rejection from a Lender 5% were denied 7% of first-time and 4% of repeat Reasons Typically denied 1 time Debt to income ratio, low credit score, income cannot be verified 31% have student loan debt, 56% getting mortgage most difficult step Profile of Home Buyers and Sellers
A veteran 18% Self or Spouse/Partner Veteran or Active-Duty Military Buyer An active-duty service member 2% Neither 80% Profile of Home Buyers and Sellers
Sexual Orientation of Buyers Bisexual, 1% Prefer not to answer, 7% Gay or lesbian, 3% Heterosexual or straight, 90% Profile of Home Buyers and Sellers
Buyers in Senior- Related Housing 14% of all buyers over 50 years old Condos & small towns resort 30% of buyers 70-90 years old Profile of Home Buyers and Sellers
16 14 12 10 8 6 4 2 Expected Tenure Remains High 9 6 15 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Profile of Home Buyers and Sellers First-time Buyers Repeat Buyers
11 10 Actual Tenure in Home is Elevated 10 9 8 9 7 6 5 4 6 5 1985 1987 1989 1991 1993 1995 1997 2000 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Profile of Home Buyers and Sellers
Where Clients Come From 64% sellers used agent referred to them/had worked w/before 53% buyers used agent referred to them/had worked w/before 2/3rds of buyers/sellers only contact 1 agent Among members 40% business is from repeat clients and referrals
Inventory is Top Struggle with Buying Process Finding the right property 52% Paperwork 24% Understanding the process 17% Getting a mortgage 11% Saving for the down payment 13% No difficult steps 16% 2016 Profile of Home Buyers and Sellers
Buyer Use of Agents 00% 90% 80% 70% 60% 50% 40% 30% 82% 69% 88% 20% 10% 0% Through a real estate agent or broker Directly from the previous owner Directly from builder or builder's agent
Agent-Assisted Sales at All- 100% 90% 80% 70% 60% 50% 40% 30% 20% Time High 21% 15% 89% 10% 0% 1981 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 8% 3% All FSBO (For-sale-by-owner) Agent-assisted Other Profile of Home Buyers and Sellers
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