John Burns Real Estate

The largest 358 metros created 464,000 more jobs in 2012 than the 1,472,000 jobs previously estimated, a 32% increase from initial employment gain figures. 310 of the 358 metros showed job growth.

The Florida housing market is booming. Home buyer traffic and sales are climbing rapidly throughout the state, leading to increasing home and land prices.

We are very bullish on housing, and already thinking through the impact that 3.5% mortgage rates can have if prices rise substantially due to the interest rate stimulus. The Fed has put 34% more purchasing power into the pockets of homeowners, and investors are taking advantage.

Inventories have plummeted in Western markets over the last year, helping to spur robust price growth. Our home price index (below) shows just how much price appreciation has occurred (the index is 5+/- months more current than Case Shiller and removes the mix-shift bias).

The "real" homeownership rate, which we define to be the percentage of households who own a home and are not 90 days or more delinquent on their mortgage, has fallen to 62.1%, which is the lowest level in almost 50 years.

Investors are buying homes at a more rapid pace than ever before, and this time their investments actually make sense. Most are buying homes below replacement costs, or at prices that allow for a reasonable rental return.

The memories of 2007 through 2011 are clouding too many people's vision. There are plenty of legacy problems from the housing boom that have yet to clear, and plenty of risk to the downside, but the demand, supply and affordability measures are in place to help us put the housing downturn behind us and move forward. We are leaving stage one of the recovery and moving into stage two. Don't miss the ride.

Our current view on housing is that the market has bottomed and the slow recovery is underway. But now the question we are often asked is, "What does that recovery look like?" Even in a down market, the mortgage industry remains a multi-trillion dollar business and our takeaway is that a full-fledged housing recovery won't completely take hold until housing finance begins to rebuild itself.

The apartment market is strong. All of the large metropolitan areas in the US are seeing rent growth and declining vacancies, but location still matters. We recently completed our forecasts for 78 apartment markets across the country and we expect the following categories of markets to experience the strongest rental growth over the next five years.

Rental households comprise 34% of the housing stock, and are growing at the incredible rate of 1.6 million per year, while owned households are actually declining in number. This is an incredible surge in demand. In our summary of the U.S. housing market only 20% of renters live in large buildings and the remaining 80% of renters live in alternative types of housing. Approximately 55% of new renters are renting single-family homes, while 45% are renting apartments. The single-family rental business, which is already larger than the institutional quality apartment business, is booming.

The following graphic summarizes the U.S. housing market. The red boxes are a small percentage of the total, yet are receiving all the media and political attention. Americans make astute financial decisions, at least in the short-term (debt will hurt us in the long-term). We will bailout very few homeowners. We will increase construction by building in the ever-increasing number of areas that need homes and builders can make a profit. We will figure out how to make portfolio investments in the massive single-family rental market. We will buy homes if it makes financial sense for us to do so.

The housing market is carving out a bottom and renters are slowly starting to purchase homes again. The percentage of apartment REIT renters moving out to purchase a home rose last quarter.

Over the last 3 months, prices are up in 90 of the 97 markets we analyzed. The average price increase over the last 3 months is 1.1%, or a 4.5% annual rate. This is big news, so why isn't anyone else reporting it? It is because most price indexes are at least 3 months behind what's happening with home prices right now. The Burns Home Value Index (BHVI) gives you a 3-month competitive advantage. We developed the BHVI to answer the question, "What is happening to home prices today?" The answer is, "Home prices are rising!"

Since our client webinar last January, we have been defending our realism, which was viewed as optimism by most of our clients, whether they are builders, developers, product manufacturers, private equity investors or public markets investors. We called for home prices to fall slightly, a tough three years selling homes, and a construction recovery that is exactly the time for patient money (5-10 year money) to invest wisely. Most money is not that patient, so the challenge for each of our clients continues to be when to increase their investments.

People buy homes for many different reasons, and the mix of reasons has shifted lately. Family-related reasons, such as marriage or divorce, is an increasing percentage, while the desire for homeownership is a decreasing percentage of home buyers. This supports our forecast for 62% homeownership. With the general view that prices and mortgage rates are more likely to get better than worse, many buyers are staying on the sidelines. When they can say, "We should have bought 6 months ago," we expect the pent-up demand to begin to unleash.

Student loan debt now totals $865 bn, which is greater than all credit card debt and other types of household debt except for mortgages! College graduates have debt averaging $25,000. Even more troubling is the rise in debts associated with for-profit college and trade schools, whose revenues come primarily from debt available through Federal government programs. The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled. With the economy little improved since 2009 (two-year lag on data), default rates are bound to rise further.

We have done a lot of quantitative and qualitative research on the future of homeownership, and concluded that homeownership is likely to fall eight percentage points, from 70%* in 2005 to 62% in 2015. The American Dream of Homeownership is still alive and well, as confirmed by several surveys, including ours. However, we are going to return to requiring future homeowners to save and to take on debt that they can afford to repay. This will be a shock to some, but we all know it is the right thing to do.

The charts below tell the story. The typical U.S. consumer has become addicted to debt, and the banker/dealer continues to supply more debt drugs in the form of credit cards as well as low interest rate loans for homes, cars, televisions, and even cell phones (cheap phones in exchange for multiyear contracts). Business owners and governments are just as addicted. Why wait for what you want when you can get your fix right away by signing on the dotted line?

After extensive research, we believe that selling REO homes (homes that are owned by the lender after foreclosure) to investors makes the most economic sense for the banks, Fannie Mae, Freddie Mac, HUD, and the American taxpayers. Current regulatory and political pressures that prohibit or discourage these institutions from adopting this sound economic decision should be relaxed. Selling REO to investment groups who will professionally manage the homes, can help stabilize home prices, improve REO asset recoveries and prevent rents from rising too quickly.

Prepare to take a trip back in time as you use the interactive map below to view the last time median home prices matched current median prices. Youll find some markets and regions are mirroring 2006 - when MySpace was the top website in the social networking realm. In other markets, you may have a flashback to 1997, standing in line to see the movie Titanic.

For those consumers who are waiting to buy a home, are you aware that you could be "priced out" of the market by rising mortgage rates and tighter underwriting, even if home prices fall? Potential home buyers are focused on the wrong metric. They are overly focused on home price because of the tremendous correction that has occurred and the focus on home prices in the media. What consumers and the media are ignoring is the monthly payment, which is absolutely fantastic right now and highly unlikely to get much better. Everyone is just assuming that they will stay low forever.

The growth in non-family households is staggering! The number of non-family household-people living alone or do not have any members related to the householder-has increased nearly five times in the last 50 years. At the same time, the number of family households has increased by just 1.7 times. The absolute growth in both has been about equal. Additionally, married couples now comprise less than half of all U.S. households. The percentage has been declining at a rate of approximately 0.5% per year for the last 50 years, from 75% of all households in 1960 to only 48% last year.

With elected and appointed officials debating the future of housing, those who make real estate decisions today have to have a view (or at least a risk/reward tradeoff) on the key issues being debated in DC these days. Officials are seriously considering substantial changes to the mortgage industry, from changing the deductibility of mortgage interest to the rules and leadership on government-supported mortgages, which account for more than 90% of all mortgages underwritten today. Will they make and implement changes? What will those changes do to the market in the short-term and long-term?

We believe the apartment business is set to explode, with steadily rising rents and occupancy that will justify new construction. Here are the three primary reasons for the optimistic outlook: 1. Pent-Up Demand, 2. Modest Job Recovery and 3 Government Policy: 19 years of continually more aggressive government intervention toward homeownership is about to reverse itself.

In February, we handicapped a 75% chance that Congress would reduce the mortgage interest deduction, when consensus among our clients was only a 32% likelihood. Since Congress is getting closer to acting, we are publishing a free copy of our February 2011 report and circulating it around D.C. so we can help officials make an informed decision. The most likely scenario, a reduction in the principal balance of deductible mortgage debt to $500,000, raises only $5 billion per year for the IRS, with most of the pain being felt in a few high-priced markets.

For nearly two years, corporate profits have been surging, GDP has been growing, and the majority of the key indicators we track have been moving in the right direction. Yet, home sales have remained in the dumps. The indicators that hit closest to home (pun intended) are the ones that housing needs the most. These are the day-to-day realities that keep us feeling glum: job growth is slow, we're in a "Wage-Less" recovery and home values are declining... again.

Apartment conditions are improving around the country. Vacancies are falling, rents are rising. REIS reported that 77 of the 82 metro markets for which they collect data had positive first quarter absorption, 79 experienced an improved occupancy rate, and 79 experienced increasing effective rents. Job growth is driving the improvement but, as we mentioned in our last report, 'Apartment Market Has Room To Run', apartment market demand is also set to benefit from a major demographic shift. Additionally, the aftermath of the for-sale housing crisis will also create tremendous rental demand.

Generally, the 2011 spring selling season has been a disappointment, but look closely and you'll find year-over-year sales comparisons at the metro level are revealing some surprising patterns. Each month, we survey 250 to 350 public and private builder executives about conditions at over 1,800 communities they manage nationwide. This is not a statistically valid sample at the metro level (3 to 13 sample size), and remember that going from 1.0 sales per community to 1.5 sales is a 50% increase, but this is the most timely data out there. Here is one of our March findings:

There's been a lot of talk about Americans living beyond their means, but it looks like we're just taking cues from our own government. In fact, you are $127,000 more in debt than you thought, thanks to the massive federal debt load. The federal debt has grown every single year since 1957, and the debt has doubled in the last seven years alone. On top of that, we have unfunded Social Security obligations, which has a present value of $16.1 trillion as of January 2010. If we counted that, it would add another $144K to the $127K in federal debt we owe, bringing us to a total of $271K.

Net new home sales remain 9% lower than Feb 2010, despite improvement from Jan, according to results of the John Burns monthly survey of public and private homebuilding executives across the country. Net sales jumped by 26% in Feb 2011 compared to a normal rise of 12% from Jan. "We told our clients that a 9% decline is actually better than it seems, because we are comparing year-over-year to sales which were boosted by the federal tax credit," says CEO John Burns. "If we can get through the spring coming that close to last year, I would say we are seeing stability in the housing market."

The stars are aligning for an apartment boom. Other than housing affordability, all signs are pointing to a surge in rentals. Tighter lending standards, a shortage of consumers with a down payment, and strong demographics all point to rentals as the economy recovers. Look at the coming surge in demographics: The number of 20-24 year olds will grow 1.2% per year through 2013. The number of 25-34 year olds will grow 1.4% per year through 2015. This translates to an additional 1.3 million renter households. And finally, more than 1.2 million young adults moved home from 2005 to 2010.

88% of almost 10,000 consumers we surveyed think it?s a good time to buy a home. They told us what it will take to get them off the fence to buy a home, but they aren?t finding it! Our sample size was huge (almost 10,000 responses) and biased toward today?s home shoppers (respondents were among 1 million survey recipients who have recently registered their email with a home builder or land developer).

?Which markets are going to stabilize first?? I want to talk about the ramifications of the answer to that question. The answer to this question is very important to home builders and land developers, both big and small, for reasons that are far more than just the answer to ?where can I make the most money?? When a consensus view develops, such as the current consensus that Washington D.C. will stabilize first, there are a number of ramifications. Here are a few: oversupply of capital, blindsided local builders, stock price envy.

We are seeing nuances emerge that will separate the economic health and recovery of the individual markets. Washington DC, the big Texas metros, Phoenix and Orlando lead the way in job growth. Chicago, Las Vegas and Riverside-San Bernardino continue to shed jobs. More than one-third of all sales are going to investors in former bubble markets. The number of homes on the market generally improves the further West you go.

Those of you who have been following this e-mail for a while are noticing that many of the grades below have shifted from D?s and F?s to B?s and C?s. That is because the economy is starting to reach its long-term average outlook. Housing, however, is clearly going to lag the recovery rather than lead it. In the meantime, how do you make money in housing?

In the last 4 years, the public builders have reduced their land holdings from 2.2 million to 700K lots, and only built on about 200K of them during that time period. What happened to the remaining 1.3 million lots?

To kickstart construction, banks need to see nonperforming construction loans and REO at a price that makes development feasible. It is very clear to us that the regulators and auditors have allowed many banks to defer taking losses, which is probably the right decision for the FDIC, bank shareholders, and taxpayers. When the banks start selling these loans and REO, construction will increase.

The biggest bubble markets like Phoenix, Las Vegas and Stockton have corrected back to 2000 to 2001 median prices. But many of those metros late to the downturn such as Seattle and Houston are still at 2006 prices and are likely to see more price erosion before stability returns. We are showing resale prices above. New home prices, net of incentives, have corrected more, and we have found that they serve as a great leading indicator because home builders react quickly to market conditions.

The most likely scenario is that government intervention will make homes slightly harder to sell over the next few years. There is plenty of short-term risk ahead. Focus on good locations where people want to live, and plan for having to sell homes to higher credit quality buyers. Stay more informed than ever because surprise announcements could impact consumer confidence and sales positively or negatively. In turn, that could dramatically affect home buying sales, volume and pricing.

There are now approximately 2.5 million foreclosures in process, and another 2.5 million mortgages that are 90 or more days delinquent. These numbers will trend down, while real estate owned (currently 562,000 bank-owned homes) and short sales will trend up. The greatest levels of distress will be in the markets already hit hard, such as Stockton and Orlando. Because there is more than a one-year supply of homes on the market, bank servicing arms and REO managers will drop prices in order to get the loans and homes off their books.

While officials are gearing up for the August 17 meeting on government-sponsored enterprise reform, the GSEs are losing millions of dollars every hour. Why? Because home prices are falling again. John Burns has a solution to boost housing demand, limit supply, and help GSEs navigate through the remainder of the crisis.

There is no denying in the wake of the Deepwater Horizon disaster that oil, gas and overall energy continues to influence Houston's economy far more than it does the nation as a whole. As a result, the Houston metro area should see a continued drop in single family housing permits over the next two years. In the longer term, however, oil won't be to Houston what the automobile industry was to Detroit. Affordable housing and a welcoming and aggressive business environment will help Houston prevail as one of the top housing markets in the country.

Eight million homeowners are currently not paying their mortgages, and 6 million of these owners will probably lose their homes to the bank in the next two years. This will reduce the homeownership rate to 62 percent. According to a recent study, another 5 percent of all households have no equity in their homes. This suggests that only 57 percent of U.S. households own a home with equity value. If many of these owners strategically default, this will push homeownership even lower. John Burns traces variables that will affect homeownership over the coming years.

John Burns provides an update for a video originally released in March 2008. The video discusses three factors that need to be in place for a housing recovery: demand, supply and investment. Job growth is coming back slowly, and renters are slowly figuring out that this is the best home buying opportunity of a lifetime. Meanwhile, new construction is at an all-time low, and will likely stay low until the bank REO selling subsides and private builders can find capital. Finally, mortgage rates and home prices have fallen dramatically, to create the best consumer affordability in 30 years.

Executive decision makers want to know whether prices are trending up or down, and that question has never been harder to answer. Burns suggests that merely looking at headlines as a basis for research or information is a surefire way to get misinformed. When forced to answer the question, John Burns Real Estate says that most home prices are reverting to 2003 prices ? some areas have overcorrected and some have not fully corrected. That covers them on a national scale, yet they know the truth is much different depending on what submarket or pool of homes you are talking about.

Following the expiration of the home buyer tax credit on April 30, net sales per community across more than 1,900 communities dropped 27 percent according to John Burns Real Estate Consulting's June survey of home builders. In the previous month, sales per community reached 1.84 units, but this month fell to 1.35 units, which is the lowest level since March 2009. Chief executive John Burns says the price correction thus far has been only minor, while falling mortgage rates, great affordability and positive job growth will build demand back up.

The housing recovery being touted by elected officials is far from assured. There will be fewer homeowners thrown out on the street this month than would have occurred otherwise, but they will be tossed out later. The modification programs have helped stabilize home prices around the country, mostly because they have created so much confusion that people can live in their home for free for one year or more, and are buying time for thousands of banks to continue improving their balance sheets with earnings from good loans, while deferring write-offs of bad loans.

Positive job growth may soon be here. Recent job loss figures have been only slightly negative, and big companies that downsized significantly, as well as small businesses returning to growth mode may soon drive job creation. The length of unemployment in the labor force is still hovering near 30 weeks, however, and so job-focused government stimulus is likely to continue. The Census Bureau will hire nearly 1.2 million temporary workers over the next 3 months, but it will be important not to overreact to the news this generates.

Contrary to industry buzz, the Washington, D.C. economy is not on the mend. Local job markets posted solid losses as 2009 progressed. D.C. could be one of the first housing markets to stabilize, however, due to improved affordability, a lack of new home construction and relatively few foreclosures.

Builders in Southern California, Texas and the Northeast report climbing prices, either due to reduced incentives or outright increases to base pricing. Eighty-seven percent of builders expect to lose sales due to new Federal Housing Administration guidelines, however, while 50 percent expect to lose 10 percent or more of sales.

John Burns Real Estate president John Burns says in his monthly email that affordability has rarely been better for the entry-level home buyer, but affordability has rarely been worse for buyers who bought or refinanced their homes in the past decade and are considering a move up or down. He also explores several other statistics in his U.S. housing forecast.

We see a large "W" shaped [existing homes] sales volume curve forming, with a huge decline when the December and January data is released, and a potentially even larger spike in May and

Though December was another slow month for housing, sales and traffic picked up immediately following Christmas, and continue to show more strength into the new year, according to John Burns Real Esta