John Burns Analysis and Forecast March

Hello to our clients at Compass:

The spring selling season is off to a strong start. Demand metrics are muted because of a limited amount of new supply, but based on planned construction, that supply is coming.

We updated our MSA-level home price appreciation forecasts this month. Double-digit increases in most markets in 2022 are fueled by a combination of factors:

·         We had anticipated more response on the supply side from the resale market so far this year, which hasn't happened.

·         Builders are taking much longer to respond on the supply side.

·         Inflation and a fear of missing out on low interest rates.

Continued investor activity is contributing to rising home prices.

·         Our reports this month include updated investor activity data for 4Q 2021, which shows the investor share of purchases rising to the highest level in years in many markets.

While rising prices continue to hasten affordability concerns, incomes are rising.

·         We revised our income estimates and forecasts this month across the markets, driven by inflation and the tight labor market.

·         We estimate household incomes rose 7% nationally in 2021 and are set for 8% growth in 2022.

·         While mortgage payments and rents are rising faster than this in many markets, the increase in incomes provides some relief for rising housing costs.

To download the more extensive data analysis reports, which include 72 pages of data and charts for each of your markets. Click here to download your market summaries report.

Current fundamentals (based on current Housing Cycle Risk Index)

·         Low Risk, Unchanged: Boston, Boulder, Charleston, Orange County, Port St. Lucie, San Francisco, West Palm Beach

·         Low Risk, Weakening: East Bay Area, Los Angeles, Richmond, San Jose, Santa Rosa, Washington, DC

Very Strong sales and pricing conditions

·         East Bay: Builders report 2–4 sales per community on average in February, and we continue to hear reports of sales metering, which drives down sales rates. Prices rose 10%–20% YOY, behind the national average (20%) but still a large increase in absolute terms due to high Bay Area base prices. Supply has thinned out in the Highway 4 corridor and Amador Valley submarkets, which will allow builders to continue pushing prices.

·         San Francisco: The market is experiencing improved new home sales and pricing conditions. Builders averaged 2–4 sales per community and 10% YOY price appreciation. Although lower than the 20% national rate, 10% YOY price appreciation represents a large increase in absolute terms given high base prices. Further, several large tech firms (Apple, Google) have announced plans to mandate in-office work at least part time, which we expect will increase demand closer to the Bay Area’s urban core.