The B&D Interview: Mark Fleming, Chief Economist, First American Financial Corporation

Economist discusses housing trends, the state of the economy and millennial homeownership 

Builder & Developer: Tell me about First American. 

Mark Fleming: First American Financial Corporation (NYSE: FAF) is a premier provider of title, settlement and risk solutions for real estate transactions. With its combination of financial strength and stability built over more than 130 years, innovative proprietary technologies, and unmatched data assets, the company is leading the digital transformation of its industry. 

First American Title Insurance Company is the largest subsidiary of First American Financial Corporation. First American Title’s Homebuilder Services division combines deep homebuilding industry expertise with leading technology to deliver a streamlined closing process that both builders and home buyers appreciate.

B&D: What are some significant housing market trends people should be aware of?

MF: The most important trend right now is the impact of rising mortgage rates. As the market responds to higher mortgage rates, the squeeze is on affordability and that is impacting demand. The sharp decline in affordability is causing buyers to pull back from the market and it is increasing the rate lock-in effect on homeowners – there is limited incentive to sell if it will cost more each month to borrow the same amount of money. While these forces may dampen home sales, they will also result in a more balanced housing market.

B&D: Where do you predict the state of the economy will go moving into the end of the year?

MF: The Federal Reserve is hoping to guide the economy to a soft landing, characterized by a situation where the Fed’s efforts to tame inflation does not harm employment. The objective is to reduce excess labor demand, a reduction in job vacancies, without a significant increase in the unemployment rate. The number of job openings remain near historic highs and far exceed the pace of hiring, which suggests that employers can shed vacancies before they reduce existing employment. A soft landing may not be that far-fetched. The labor market has so much excess demand in the form of unfilled job openings that, as rising rates reduce demand for goods and services, the unfilled job openings intended to support the demand for goods and services should dwindle, bringing some balance to the labor market.    

B&D: Do you think millennials are changing the market? If so, how?

MF: In the housing market, absolutely. While millennial homeownership has been delayed relative to their generational predecessors and more recently by dampened affordability, millennials still have a strong influence on the housing market as they continue to age into their early-to-mid thirties and make the lifestyle decisions that are highly correlated with buying a home. Buying a home is both a financial and lifestyle decision, and despite growing affordability headwinds, millennials will continue to transition to their prime home-buying age and will remain the driving force in homeownership demand in the years ahead.

B&D: What do you think the “new normal” will be for the housing market?

MF: Not a new normal, but a not-so-new normal. As mortgage rates rise alongside house prices in an environment of limited inventory, some potential buyers will pull back from the market and house price appreciation will moderate from its current record-setting pace. Yet, the rate lock-in effect will continue to keep supply below demand, and house price growth will remain positive. The last two years were the exception, not the rule, and the housing market will adjust to historically normalized mortgage rates, house price appreciation, supply and demand. A not-so-new normal.