GIC-Housing-Finance

Index finds Rallying Home Purchase Market in 2016

Today, AEI’s International Center on Housing Risk (ICHR) and First American Financial Corporation release the AEI/First American National Housing Market Index (NHMI), the first index ever to analyze sales transaction volume for the entire home purchase market.

The national housing market continued its rally in the fourth quarter of 2016. On an annualized basis, 5,810,000 sales transactions were reported, which is up 350,000 transactions, or 6.4 percent, from 2015.

  • 2015 had already seen demand grow by 340,000 transactions or 7.6 percent from 2014.
  • The home purchase market also closed out 2016 with strong growth as transactions increased 9.1 percent in the fourth quarter compared to a year ago.
  • Cash sales continued to trend down accounting for only 29 percent of all transactions in 2016, down from 30 percent in 2015 and 36 percent in 2013.
  • Filling its void was government-backed lending, which accounted for 55 percent of all transactions in 2016, up from 53 percent in 2015 and 50 percent in 2013. 
  • The AEI/First American National Housing Market Index (NHMI) is the first index to report on the entire home purchase market.
  • Transaction numbers are also available on the state and metro area level for unprecedented geographical detail.

The NHMI combines ICHR’s data on the federal agency market (Fannie Mae, Freddie Mac, Federal Housing Association, Veterans Affairs, and Rural Housing Services) with data provided by First American via DataTree.com for the private side of the mortgage market and for cash and non-institutionalized lender sales. The combined data set nearly covers the volume of the entire market at the national, state, and metro levels. To account for the small amount of incomplete data, housing data are scaled to estimate total volume at the various reported levels.

In contrast to existing estimates of home sales, the AEI/First American NHMI is based on comprehensive loan- and transaction-level data and does not involve extrapolations from a survey or sample of the housing market. Other published data are based on surveys or samples, necessitating assumptions about the entire market. The NHMI is the only metric that (i) compiles data from virtually the entire housing market, (ii) provides views into the data from many key perspectives, and (iii) is published quarterly with minimal time lag.

The AEI/First American NHMI is released quarterly by AEI’s ICHR. It provides counts for home purchase transactions undertaken with institutional financing or other financing, as well as cash sales. In addition, dollar volumes, loan counts, average loan amounts, and market shares for primary owner and secondary owner/non-owner tenure types will be provided at the national, state, and metro area level for each of the five loan agencies (Fannie Mae, Freddie Mac, the FHA, the VA, and Rural Housing Services), as well as for the private (non-agency) loan sector in order to give an accurate and detailed picture of activity in the home purchase and the mortgage loan markets. Today’s release reports on transactions from the fourth quarter of 2016. The quarterly time series tracks housing data back to the fourth quarter of 2012 and is based on almost 23 million home purchase transactions. The number will grow with each additional quarter of data.

“The NHMI-Primary Owner Purchase Loan volume index rose to 141 in 2016: Q4, as compared to 124 in 2015:Q4 and 116 in 2014:Q4,” noted Edward Pinto, co-director of the American Enterprise Institute’s (AEI’s) International Center on Housing Risk. “Based on these and other data, I expect 2017 purchase originations to continue to grow robustly.”

“The total value of residential purchase transactions in the U.S. housing market approached $1 trillion in 2016, coming in at $965 trillion for the year. The share of cash sales continues to decrease, but remains a significant portion of the overall market at 29 percent,” said Mark Fleming, chief economist at First American. “Entering the busy spring home buying season, I expect prices to continue to rise and transaction volumes to continue to grow, spurred on by the strong sellers’ market and increasing Millennial, first-time homebuyer demand.”

The NHMI for the first quarter of 2017 will be released on June 26, 2017.

To arrange an interview with Ed Pinto, please contact AEI Media Services at mediaservices@aei.org or 202.862.4870.

To arrange an interview with First American Chief Economist Mark Fleming, please contact First American’s corporate communications team at 714-250-3298. Mark Fleming’s unique research and analysis of real estate, mortgage risk and housing trends is available at www.firstam.com/economics.

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.

About AEI

AEI’s International Center on Housing Risk provides research, commentary, and new tools for measuring housing and mortgage market trends. Mr. Pinto is the codirector of the ICHR, a resident fellow at AEI, and a former executive vice president and chief credit officer for Fannie Mae.

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