Houston Housing Outlook 2013
Greater Houston Builders Association Presentation
By: Mike Inselmann, Founder and Former President of Metrostudy
The outlook for housing, and indeed most types of real estate, is very bright indeed as the New Year begins to evolve. After a long, anxious, and scary, recession market conditions are exceedingly favorable for all types of housing sectors in Houston.
The National Economy is showing signs of a steady, but unexceptional recovery pace assisted, ironically, by a burgeoning increase in new home construction (and all the jobs and materials needed in support of home building). The mortgage industry misbehavior in the middle of the last decade triggered a housing downturn that pulled almost every sector of the US economy into the morass of all too familiar since 2008. Now housing is poised to play a significant role in the recovery of the next few years. The end of the recession, expansion of job growth, the welcome end to the election season and all the negative rhetoric has improved the spirits of consumers. Spending on consumer goods, autos, and now housing is having a positive effect on the economy.
Houston is at the top of almost every list relating to housing and real estate. The downturn in Texas and Houston was not as severe as most of the ‘crisis’ markets around the country, and the upturn began sooner and is likely to be more sustainable due to the inordinate share of job growth being created in Texas and Houston.
The Houston economy moved from the recovery phase in November 2011, when the local job market regained all the jobs lost in the recession, and began building an ever larger employment base that has now reached roughly 2.8 million workers (double the job base at the end of 1982). Houston will show an additional 95,000 jobs since that point in November 2011 once the final 2012 figures are tabulated. Jobs are the principal driver of demand of demand for all goods and services; jobs create households and household growth is the demand for additional housing, both for purchase and for rental.
The robust job recovery, thanks mostly to the expansion of the energy sector in the past few years, has created enough households to absorb all of the excess housing in Houston for single family homes, rental homes, during the second half of 2012. Home prices are rising, apartment rents are the highest in history, and builders of both new single family homes and rental apartments are ramping up construction to try to match this new demand. Consumers of housing in the next six months will come to realize that the window of opportunity to lock in a ‘deal’ on a new place to live has closed.
Prices will most certainly continue to rise because of the mismatch between supply and demand alone, but cost increases will also play a major role in housing price increases. A dearth of buildable lots has home builders scrambling to find places to build homes and lot costs are increasing too. Apartment builders are paying dearly for well located sites near or within Loop 610 as well. Furthermore the surge in construction in the past year caught the supply chain flat footed as the supply of concrete, building materials and labor are challenging the industry to raise prices to cover the increased costs. It is quite possible that the demand for housing will remain stronger than the builders’ ability to deliver units for much of the coming year.
Single Family Resale homes listed in MLS at the end of December amounted to a 3.7 month supply the lowest in 12 years. Sales of pre-owned Single Family homes listed in MLS have risen 24% since June of 2011 even as the number of listings has declined. During that same period demand for new Single Family homes has risen 39 %. So, sales are increasing, supply is shrinking and prices for both for sale housing and rental apartments are on the rise.
In the past 15 years demand for new single family homes has averaged 30,000 per year, compared to an average of 22,000 over the past 30 years. Metrostudy calculates the sustainable demand for new single family homes to be approximately 32,000 new homes per year based on job growth and population forecasts for the Houston Region. In 2012 builders started 23,500 so there is room to grow before reaching that projected demand. But some hurdles remain that make it difficult to reach that level very soon. First is the previously mentioned short supply of lots, materials and labor to build homes. But, mortgage underwriting standards remain restrictive, and many transactions for new and existing homes that do sell are subject to an ongoing disagreement over appraised values. Furthermore, demonstrated demand from first time buyers has been severely restricted by credit issues and underwriting restrictions. It is unclear whether the local market can reach the 32,000 annual units of demand without some contribution from first time and low to moderate income buyers. But it will come, and in the meantime home builders will likely start construction on between 26,500 and 27,500 new homes in 2013, an additional 13-17% increase in the coming year. That is, if production can keep up with demand.