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G O O D CO N N E C T I O N S | W I N T E R 2 0 1 5 6 2015 CONSTRUCTION OUTLOOK Cautious Optimism for the Housing Forecast By Rick Palacios Jr., Vice President and Director of Research, John Burns Real Estate Consulting, LLC We asked the experts at John Burns Real Estate Consulting to provide their perspective on this year's outlook for construction. Here is their assessment of the market. We believe the housing recovery will get back on track in 2015. The fundamentals for a strong year are in place, even though demand has waned in the last few months – with very little explanation. For 2015, we forecast a: • 9 percent increase in starts to 1.1 million • 11 percent increase in new home sales to 485,000, but consider the following: Long-term recovery trend. New home sales grew 20 percent in 2012 and 17 percent in 2013 before running flat in 2014. The long-term sales growth trajectory is 10 to 15 percent annually. Available supply and labor. Sales rates per community fell in 2014, and community counts and construction labor grew, so we are confident that the supply is in place to grow 11 percent in 2015. Better affordability. Mortgage rates are currently lower than they were during most of 2014, and homebuilders have been reducing prices to boost sales, which we believe will continue in 2015. Also, wages should improve, as the unemployment rate has fallen to 5.7 percent, and there are a record number of people retiring every month. Falling gas prices will help consumer pocketbooks as well. Rising real demand. The number of owner-occupant home buyers has risen steadily (while investor activity has fallen), and the economy has been steadily adding more than 200,000 additional jobs each month, which is more than double the rate of construction. Slightly looser lending. Lenders are becoming slightly more aggressive, with the most notable recent change being the Federal Housing Finance Agency's (FHFA) promise to have government- sponsored enterprises (GSEs) buy 97 percent LTV mortgages. Paltry absolute volumes. The forecasted 11 percent growth still results in new home sales and construction volumes that are less than half their historic norms in many markets.