Five Questions with Mark Fleming, chief economist, First American Financial Corp.

Mark Fleming is chief economist for First American Financial Corporation, a leading provider of title insurance, settlement services and risk solutions for real estate transactions. He has 20 years of experience in the mortgage and property information business, and leads an economics team that is responsible for analysis, commentary and trend forecasting in the real estate and mortgage markets. 

Fleming’s research mainly focuses on real estate and urban economics, applied econometrics and mortgage risk. He has published research in the American Journal of Agricultural Economics and Geographic Information Sciences and in the book Advances in Spatial Econometrics. He is also a U.S. patent author. Fleming is frequently quoted by national news outlets and industry trade publications. 

What is the First American Homeownership Progress Index (HPRI) and what trends has it recently uncovered?

The HPRI provides a unique view of homeownership rates and the underlying demographic and economic factors that influence homeownership levels in the United States. It’s based on the household level Census sample data from the Current Population Survey. The reason we use this data is because it allows us to study the underlying demographic, lifestyle, and economic variables that drive tenure choice decisions for American households. The HPRI measures homeownership overall, as well as the demographic and economic factors that underlie homeownership rates, based on the historical range of values at national and state-by-state levels over time. The most important trends uncovered by the index are the demographic and lifestyle decisions of Millennials. The pursuit of higher education levels, the delay of marriage and childbirth, and the ongoing recovery from the Great Recession are all contributing to posponement of the ownership decision among young households today. That said, this does not mean Millennials aren’t interested in homeownership, it just means they are not pursuing homeownership yet.

In a December blog post, you said that income for a first-time homebuyer must increase in order for him or her to be able to buy today’s starter home a year from now. What was the basis for this viewpoint and are you concerined that groups such as ethnically diverse populations, Millennials, and those who live in high rent locations will have a tougher time achieving sustainable homeownership? In other words, is homeownership becoming elusive to those who might rely on it most for building wealth?

Reasonably assuming—and that’s what economists attempt to do—that house prices will continue to increase and that interest rates will rise in 2016, then income growth is the only way for first-time homebuyers to maintain their home purchasing power. Yes, I am concerned that if income growth is insufficient, first-time buyers will face an increasing challenge in finding affordable housing to buy. That said, keep in mind my earlier comment about Millennials deciding to pursue higher education levels as one reason for their delay in the decision to become homeowners. More highly educated young households should have higher income-earning potential that has not yet been realized, but which will ultimately help them gain access to homeownership. I worry less about young educated Millennial renter households today than I do about lower income, less educated renter households in general. The challenge of finding quality affordable housing for lower income households is becoming more difficult, especially in high-priced markets.

In your opinion, what roadblocks to homeownership can most easily be addressed?

It’s important to understand that the desire to become a homeowner is strongly influenced by one’s age and lifestyle decisions, such as getting married or having children. For those who have the desire because they have reached a certain age or made a lifestyle decision to purchase a home, the roadblocks are typically saving for a down payment, finding affordable housing, and obtaining access to credit. The roadblocks most easily addressed are down payment and access to credit. For first-time homebuyers, low down payment loan programs exist to help reduce the savings burden. In addition, we’re seeing greater availability of tools that measure and assess creditworthiness more broadly than traditional methods (and, hopefully in 2016, those more inclusive methods will be used more frequently in mortgage lending decisions). In the long run, given that future first-time homebuyers are likely to be more ethnically diverse than ever before, it will be important for the growth of the housing-finance industry to broaden its definition of creditworthiness and provide loan products that match borrowers’ financial behavior.

Last month, you spearheaded a forum in Washington D.C. called “Achieving the American Dream.” [Note: VantageScore Solutions president & CEO Barrett Burns spoke at this event.] What were the key takeaways from this forum, and how might policy makers use these takeaways to implement changes?

Yes, we co-hosted a wonderful bipartisan event with members of Congress which featured industry leaders such as Barrett Burns, and housing advocates. The event particularly focused on exploring commonsense, sustainable solutions to the challenges currently facing the Latino and African-American communities when seeking to buy a home. I think the event, first and foremost, brought to light the importance of the issue by emphasizing the fact that the housing market will be sustained in the future by demand from ethnically diverse young households—particularly those from the Hispanic community, which is projected to be the fastest growing group of households for the foreseeable future. Second, there are examples of very successful businesses that already specialize in lending to this community, so it has been established that it can be done safely and prudently. Finally, policy makers can have a big influence on success by supporting new and different ways of establishing creditworthiness and promoting innovative industry solutions under the post-crisis regulatory paradigm. 

What indicators in 2016 are you most closely watching and why? 

This year, the most important housing trend will be the manner in which the market adjusts to a rising interest rate environment. We have had about 25 years of downward-trending mortgage rates that spurred more frequent housing turnover, easier access to credit, and increased homeownership and refinance demand. As rates modestly rise, we should begin to see the market adjust to greater first-time purchase demand. This is the beginning of the transition to the new-normal housing market. Of course, this scenario depends on rates actually rising, which economists recently have been calling for every year. In fact, even as quantitative easing and a federal funds increase have occurred, long-run mortgage rates have actually trended downward due to global uncertainty and the “flight to safety”. Right now, it seems that the more fragile the global economy, the cheaper American housing becomes!

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