GlobeSt.com: How do you view the long-term outlook for the housing market based on the headwinds of tight inventory and further rising mortgage rates?

Fleming: My long-term outlook is still very positive. I expect a lot more demand for homeownership in the future, as Millennials age into their prime home-owning years. Housing is something everyone needs, and you can't outsource it.

GlobeSt.com: What tailwinds could arise to mitigate these factors in favor of the housing market?

Fleming: A growing population in general and, more specifically, the oncoming surge of Millennial demand.

GlobeSt.com: How are mortgage lenders taking these factors into account?

Fleming: The priorities of the mortgage industry have shifted from an emphasis on addressing regulatory and compliance change to a forward-looking focus on process and product innovation to meet the needs of the industry's new customers. In particular, how can the mortgage transaction be automated, changed, disrupted to make it better, faster and more appealing to future homebuyers?

GlobeSt.com: What else should our readers take away from your recent potential home-sales model and analysis?

Fleming: The most important point is that recent rate events are not something to worry too much over. Almost two-thirds of American households are already homeowners, so the rate changes have little impact on them. Even for the first-time buyer, while some affordability is lost, housing remains highly affordable and will for the year to come.

IRVINE, CA— The home-mortgage industry is moving from a regulatory-and-compliance-change focus to a more forward-looking stance on process and product innovation to meet the needs of its new customers, Millennials, First American Financial Corp.'s chief economist Mark Fleming tells GlobeSt.com. In a recent report, Fleming highlighted the impact of rising rates on market potential and prices.

“The market potential for existing-home sales continues to grow based on the strength of the broader economy, particularly wage growth, as well as improving access to credit,” said Fleming in the report. “But, the market continues to underperform its potential, primarily a result of persistently tight inventory. The post-election 'Trump Bump' in long-term US treasury yields that triggered mortgage rates to rise above 4%, as well as the increase in the Federal Funds rate last week, will likely have a modest cooling impact on potential home sales heading into 2017.”

Fleming added that while rising rates reduce affordability for potential first-time homebuyers, the expected moderation of price appreciation will align house price growth more closely with recently increasing income growth to help offset reduced affordability in the year ahead. As for the impact of rising rates on prices, he said, “Home price appreciation is typically more sensitive to mortgage-rate increases, and I expect to see a decline in the house price growth rate of almost a full percentage point by the end of 2017. The 'taper-tantrum' in 2013, which was a larger increase in mortgage rates than we have seen in recent weeks, produced a similar result—a decline in sales activity, but a more pronounced decline in house price appreciation.”

We spoke with Fleming about the long-term outlook for housing based on the current headwinds and tailwinds the sector faces.

GlobeSt.com: How do you view the long-term outlook for the housing market based on the headwinds of tight inventory and further rising mortgage rates?

Fleming: My long-term outlook is still very positive. I expect a lot more demand for homeownership in the future, as Millennials age into their prime home-owning years. Housing is something everyone needs, and you can't outsource it.

GlobeSt.com: What tailwinds could arise to mitigate these factors in favor of the housing market?

Fleming: A growing population in general and, more specifically, the oncoming surge of Millennial demand.

GlobeSt.com: How are mortgage lenders taking these factors into account?

Fleming: The priorities of the mortgage industry have shifted from an emphasis on addressing regulatory and compliance change to a forward-looking focus on process and product innovation to meet the needs of the industry's new customers. In particular, how can the mortgage transaction be automated, changed, disrupted to make it better, faster and more appealing to future homebuyers?

GlobeSt.com: What else should our readers take away from your recent potential home-sales model and analysis?

Fleming: The most important point is that recent rate events are not something to worry too much over. Almost two-thirds of American households are already homeowners, so the rate changes have little impact on them. Even for the first-time buyer, while some affordability is lost, housing remains highly affordable and will for the year to come.