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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 7 2015 Cautions As with any forecast, we have concerns. Our three primary concerns are: 1. The recovery is not yet complete. All of the following data points show why housing sales and construction are not back to norm: • 2.2 million fewer full-time jobs than in 2008 • Factory capacity utilization still 0.9 percent below norm • 10 percent of homeowners still owe more than their home is worth • Real incomes are the lowest in the last 17 years 2. Home and land prices rose too fast. The main reason 2014 new home sales struggled is that new home and land prices rose too fast in 2012 and 2013. In some areas, new homes are priced too high above resale alternatives, which are being rectified by falling new home prices and rising resale prices. In many of those same areas, a few builders overpaid for land, and sellers are holding out for those same prices and not getting them. This will slow the pace of new home construction. 3. Recent waning demand. Our biggest concern for 2015 is the sentiment echoed by many of our clients, which is the market softness experienced in the last few months. We grade the current performance of the 70 largest housing markets each month, and the percentage rated "Cold" has steadily increased from 22 percent in June to 50 percent today, while the percentage rated "Hot" or "White Hot" has fallen from 12 percent to nine percent. In summary, 2015 promises to be an interesting year, and we look forward to working with our clients and potential new clients to help navigate the choppy waters. n Rick Palacios Jr. has more than a decade of residential real estate and economic research experience, and is based in the firm's Irvine, California, office. He oversees all research pertaining to single-family for sale/rent, multifamily and building product sectors, and is quoted regularly in major news and business media. About John Burns Real Estate Consulting John Burns Real Estate Consulting, LLC is a nationally recognized source of independent housing research, advice and consulting whose mission is to help executives make informed housing industry decisions. The firm provides builders/developers, banks/lenders, investors and building product manufacturers with the timely analysis they need to make smart decisions, quickly and cost-effectively. Its research is backed by detailed data, as well as proprietary tools and experienced professionals around the country. For additional information, visit www.realestateconsulting.com. U.S. National Housing Starts (millions) Current Market Conditions (70 Major Housing Markets) Source: John Burns Real Estate Consulting, LLC (Pub: Feb-15) Source: Census, John Burns Real Estate Consulting, LLC forecasts (Pub: Feb-15) NSA, Current=SA (Data: Dec-14) Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15