Real estate guru shares six real-estate related insights
Mortgage rates will rise, a downturn in housing is unlikely, presidential appointees will maintain a firm grip on mortgage policy, and building materials expenditures will grow. Those expectations were among insights discussed by real estate "guru" John Burns at a recent webinar.
Burns, the founder and CEO of John Burns Real Estate Consulting in Irvine, Calif., was the featured speaker during a 30-minute investor-oriented Housing Market Outlook webinar for Bloomberg's 300,000+ subscribers. His presentation covered the impact of mortgage rates on housing, and the outlook for home building, new construction spending, and spending devoted to repairs and remodeling.
"The future is always uncertain, but investors have to have a view," stated Burns, a former senior manager at KPMG Advisory, in introducing his "most likely scenarios." That summary included:
- Expect mortgage rates to rise to 5.1%. The bond market is telling us that we should expect mortgage rates to gradually rise to 5.1% by 2021, so we are going with what the bond market says.
- Look elsewhere for recession risk. Housing is very unlikely to cause a downturn, with historically low single-family construction and tight mortgage documentation. Home prices should fall if and when another sector of the economy causes a recession. Here is a summary of a report from 15 months ago on where the Burns firm believes the risks lie.
- Rates matter more for stock prices than for new home sales, both according to 40+ years of history and 2018 new home sales, which are up year over year. The economy matters far more than rates. See the Burns 2017 white paper on this.
- The president will control mortgage policy. Presidential appointees now control policy on 71 percent of all mortgage originations, with President Trump able to replace the GSE regulator overseeing 46 percent of all mortgages when Mel Watt's term expires in January. The recent overturn of portions of Dodd-Frank gives an indication of where policy is heading.
- Huge regional differences. For the ultimate difference in performance during the recovery, compare and contrast the Nashville and Chicago metro areas. Fifteen (15) of the top 33 markets have now reached the mature stage of the cycle.
- 6.8 percent bull's-eye building materials forecast. Our building materials spending forecast, which is the only one to include multifamily and rental homes, calls for solid growth the next two years. We project that slightly smaller homes, a slowing economy, and a pivot to more DIY projects will slow the robust growth rate in 2020 and later. Burns' forecasts by product and region provide better insight for specific companies.
Since launching his company in 2001 and spending the first year as a solo practitioner, John Burns has built his business to a firm with around 65 people at 17 offices in 12 states. Together, they provide a diverse array of clients with housing market insights gained from on-the-ground research. The analysis and perspective on local markets helps identify areas "that are best positioned for growth or most at risk of correcting."
John Burns Real Estate Consulting publishes a free weekly industry newsletter titled Building Market Intelligence™, as well as a number of proprietary indices, surveys, and models on various housing industry dynamics. Burns has amassed more than 680,000 Twitter followers.