Oil Prices and Houston Housing Starts

Posted in Economy, Houston Market, In The News, National Housing Market | Posted on 11-05-2014 | Written by Scott Davis

Scott DavisThere’s no question that there is a strong correlation between home prices and housing starts in Houston.  A significant share of our economy is still based on oil, and energy has been the fastest growing employment sector this year.

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Historically there is a pretty strong correlation between starts and oil prices, looking back to 1980:

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Oil prices have fallen significantly in the last 90 days, falling to $75, its lowest price since 2011.  There is some belief that the price drop may be geopolitical, rather than economic as Saudi Arabia may be trying to squeeze its OPEC competitors and Russia, most of whom require oil above $100/bbl to be profitable.  Even if true, US oil production is up almost 50% since 2011, and we see evidence of weakened demand from China and India.  It’s likely a result of a combination of these factors.

What does this mean for Houston?  We’ve plotted quarterly housing starts versus real oil prices from 1980 through Q3 of 2014, below.

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The conclusion we draw is as follows:  there is a “sweet spot” between $55 and $90/bbl that produces the highest demand for Housing in the Houston market.  Above $90 it would appear that high energy prices dampen demand for housing because of the squeeze on consumer budgets for housing and in a market the size of Houston, transportation.  Below $55 it appears that demand is lessened because of weaker job growth.  The Energy Information Administration’s pricing forecast for oil in 2015 is $91, and Saudi Aramco needs oil at about $93 to be profitable.  We expect oil prices to rise slightly to that level through the quarter and remain there on average through the balance of 2015.

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What does this mean for Houston?  We expect job growth, presently 112,900 (+4.3%), to slow and to place pressure on upward prices.  The resulting declines may make some newer developments less favorable and place them under financial pressure.  Overall, however the fall in oil prices will be beneficial because:

  1. Declining energy employment, particularly in the downstream sector, will relieve pressure on labor shortages for the construction industry, reducing one of our market’s key cost drivers.
  2. Lower gas prices will favor development in more remote markets, opening up lower cost sources of land and encouraging development of lots at the lower range of the market;  about one third of new home buyers in Houston are in the under $200K price band, a segment increasing difficult to meet.
  3. Lower energy prices may assist improving economies in other markets which should help the share of Houston’s economy dependent on national economic performance.
  4. Houston’s energy economy includes upstream, midstream and downstream energy.  Downstream energy, exploration and production, will likely suffer from extended low energy prices.  The two other sectors, midstream (pipelines) and upstream (petrochemical manufacturing) will likely improve as lower prices encourage more consumption nationwide requiring more oil/refined products to be transported (midstream) or manufacturing sees lower costs for feedstock (upstream).

Houston’s economy remains heavily dependent on the energy industry, both in direct employment and supporting economic activities indirectly tied to it.  It’s important to remember that energy projects are generally significant long term investments that are not very sensitive to daily or weekly price movements and the long term worldwide trend for oil consumption still points upward.  In the short to midterm timeframe, the recent declines in energy costs should actually prove to be a positive factor in Houston’s housing market, not a negative one.

Harry Potter Casts a Spell on Florida’s Economy

Posted in Central Florida Market, In The News, Jacksonville Market, Naples - Ft. Myers Market, Sarasota - Bradenton Market, South Florida Market, Tampa Market | Posted on 06-20-2014 | Written by Metrostudy News

anthony cJune 5 (Bloomberg) –Florida’s employment picture has improved faster than any other state since the financial crisis — and some Floridians says that’s because Harry Potter has been working his wizardry in their state.

Bloomberg’s Yang Yang reports from Orlando.

See full interview here

Metrostudy Regional Director – Anthony Crocco

2014 Real Estate – David Jarvis, Metro Study – Houston Real Estate Radio

Posted in Houston Condo Market, Houston Market, In The News | Posted on 12-27-2013 | Written by David Jarvis

david jShannon Register, Broker/Owner of Register Real Estate Advisors and Host of “Houston Real Estate Radio,” talks to David Jarvis, Regional Director of Metro Study, about trends going into 2014.

2014 Real Estate

Housing Starts: Back over 1 Million!

Posted in Economy, In The News, National Housing Market | Posted on 04-16-2013 | Written by Brad Hunter

Today’s housing report from the Commerce Department show that the pace of U.S. housing starts is back again over One Million per year.  That is a simple milestone for those that monitor the new home construction market, conveying in an easy-to-understand way that the housing market is finally doing more than crawling out of its grave.  Housing is no longer dormant, and this theme will resonate broadly across the U.S. economic and cultural landscape.

The positive psychological effect of surpassing that attention-getting number may be support greater confidence among homebuyers.  Potential homebuyers (or sellers) are receiving more and more data that reinforces their belief that housing is recovering, and that belief will translate into more confidence in their decision to buy a home.

We do know however, that a great deal of the surge in construction has been in the multifamily arena, where a massive apartment boom is taking shape.  Multifamily construction drove the entire housing starts number higher, and is now running at more than 400,000 a year!  The multifamily ratio is the highest it’s been since the 1980s, during that decade’s apartment construction boom.

Single family housing starts fell in March according to the government release, but are up 28.7% nationwide versus a year ago (comparing March 2013 with the same month a year ago).

A ‘flash’ look at Metrostudy’s data, due out in full next week, show some extremely strong numbers for the first quarter.  Charlotte, North Carolina starts, just in, are up 35.7% as of 1Q 2013, compared with 1Q 2012.

Some of the markets that fell the hardest during the downturn are rebounding the strongest:  South Florida single-family starts rose 61.2% in 1Q13, compared with 1Q12.  Las Vegas single-family detached housing starts are up 69% versus 1Q12.  Tampa starts rose 48.3%, for the second-highest pace in five years.  Sarasota starts rose 70.5%.

The increases in home construction reflect bona-fide increases in demand, driven by the re-emergence of folks who had hunkered down, taken on roommates, or moved back in with parents.  The renewed strength that is being observed in markets all across the country, even those that got humbled a few years ago, is impressive, and attention-getting, to the lay observer and the expert alike.

More Americans Leave Parental Nest in Boost for Housing

Posted in In The News, National Housing Market | Posted on 01-18-2013 | Written by David Jarvis

USA-ECONOMY/NEWHOMES

Organic growth in housing demand occurs when the nation increases not just its population, but household formation increases.  By definition a new household needs a new place to live, albeit in an apartment or home.  The article points out that the pace  of household growth in 2010 “was the weakest since 1947.”  Since 2010 hundreds of thousands of new households have been created by the increased number of jobs.

This is a good for apartment owners as many people moving out of their parents’ home go first to apartments.  This will also benefit homebuilders and home owners as many renters will visit new home communities after seeing the high prices apartments are charging.

Read the full article here

What $200,000 Can Buy You Around Houston – [PICS]

Posted in Houston Condo Market, Houston Market, In The News | Posted on 01-18-2013 | Written by Madison Inselmann

Time to Buy.  Sellers Market.  Sky High Rents. Much has been made recently (this blog, the Chron) about the tightening housing supply in the Houston area, as well as a growing number of markets nationwide.  In the past Metrostudy Report has touched on how the “Rent vs Buy” ratio already favors buying a home if you’re renting a single-family home or Class-A apartment.  That’s truer now than when that post first went live back in May of 2012.  In fact, Class-B apartments have even moved within striking distance of becoming a “buy” scenario for the consumer.  Class-A and Class-B apartment designations are different for each market so I’ve included market averages as of the end of 2012 according to Apartment Data Services, our trusted friends in apartment market commentary.

Houston Apartment Market Characteristics

In Houston, housing has always been relatively affordable due to the availability of land.  If you translate the above monthly rent payments into the principal and interest (P&I) payments on a home mortgage, you’ll find that those monthly payments will buy you a good amount of home in the Greater Houston market.  For the purpose of this post I collected pictures of a variety of floor plans priced at $200,000.  This price point seemed ideal for those consumers choosing between renting an apartment or buying a home.  If you calculate the monthly P&I payment on a $200,000 loan with a 3.5% interest rate, you arrive at $898.09.  This total falls right between the market averages of the above listed rents,  and below those Class-A and Class-B averages of the apartment developments inside Loop 610.  The following homes are from a variety of builders in the Houston area with a diverse product offering near this price point.  ENJOY THE VIEW.

$200,000 Home Around HoustonThe Frisco: Available around Houston, 2510 sqft, 4 bedrooms, 2.5 bathrooms

$200,000 Home in NW Houston

The Cheyenne: Available in NW Houston, 2091 sqft, 3 bedrooms, 2 bathrooms

$200,000 Home SE Houston

The Oakdale: Available in SE Hosuton, 2361 sqft, 4 bedrooms, 3.5 bathrooms TaylorMorrison

$200,000 Beazer Home in SW Houston

The Capri: Available in SW Houston, 2385 sqft, 3 bedrooms, 2 bathrooms Beazer Homes

$200,000 DR Horton Home NW Houston

Bridgeland Model: Available in NW Houston, 2328 sqft, 4 bedrooms, 2.5 bathrooms DR Horton

$200,000 Brighton Home in NE Houston

The Milan: Available in NE Houston, 1904 sqft, 2 bedrooms, 3.5 bathrooms Brighton Homes

$200,000 David Weekley Home in NE Houston

The Granbury: Available in NE Houston, 2460 sqft, 4 bedrooms, 2.5 bathrooms

$200,000 Legend Home in NE Houston

The Garner II: Available in NE Houston, 3094 sqft, 5 bedrooms, 3.5 bathrooms Legend Homes

A Special Thanks to the Participating Builders (in order of appearance): Ryland Homes, Ashton Woods Homes, TaylorMorrison, Beazer Homes, DR Horton, Brighton Homes, David Weekley Homes, Legend Homes

Houston housing market continues its rise

Posted in Houston Condo Market, Houston Market, In The News | Posted on 01-16-2013 | Written by David Jarvis

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The Houston Chronicle ran a front page article this morning illustrating the short supply of homes for sale in Houston.  It’s a good time to a seller.

“Houses are going fast and at higher prices than ever before, experts say. Some properties are selling before they even hit the market.

“The supply of homes has fallen remarkably low, which has led to bidding wars on the best properties.”

Read the full article from The Houston Chronicle: http://bit.ly/ZXCaly

Commentary on the Fiscal Times’ “6 Surprising Ways Housing Recovered in 2012″

Posted in Houston Condo Market, Houston Market, In The News, National Housing Market | Posted on 01-15-2013 | Written by Madison Inselmann

In her article concerning the 2012 Housing Market, Blaire Briody lays out what should be some encouraging signs for housing professionals.  While it is true that there’s no such thing as a “national housing market”, improving national averages help boost consumer sentiment toward home buying which gets distributed through national media outlets.  The six key factors highlighted in the piece have enough breadth to boost the psyche of both consumers and real estate professionals alike.

Fiscal Times: “6 Surprising Ways Housing Recovered in 2012″

For Houston, these factors are stronger than the national average, and their success in 2012 was not necessarily a surprise.  Houston, and Texas overall, did not participate in the wild boom and bust period of the latest housing cycle and therefore did not have as far to recover as the harder hit markets around the country.  Below I address some of the factors mentioned in Ms. Briody’s piece in the context of the Houston Market.

3) Rise of Non-Distressed Home Sales: For Houston, non-distressed home sales through the Houston Association of Realtor’s MLS grew by 20.6% in 2012, despite a relative shortage of listings (now only a 3.8 month supply).  At the same time, distressed sales remained relatively flat, year over year, with only a 121 more sales recorded in 2012 than 2011.  Since Houston’s recession began in 2009, the percentage of non-distressed sales has grown from 77% to 82%.  Ideally, non-distressed sales should represent 85-90% of the market each year.

4) Serious Delinquencies Fall (Postings Overall on the Decline): According to the Foreclosure Information & Listing Services, the total number of annual postings dropped 22% over the last 12 months and rest 34% below the peak experienced at the beginning of 2011.  Annual postings were more dynamically influenced by the recession than the actual number of foreclosures.  While only recording 30,000 postings a year through 2007, the market jumped up as high as 51,000 annual postings in the beginning of 2011 during the tail end of the federal home buyer tax credit.  Since that point, the market has seen a steady decline back toward 30,000 postings. as they saw their numbers jump from 30,000 annually to over 50,000.

5) Home Price Growth is Happening Across Diverse Geographies: Home price appreciation is subject to supply and demand principles.  In 2006, builders began scaling back their building programs in response to the national recession.  From 2006 until early 2012, builders in the market closed more homes than they started, chewing through any excess inventory created during the housing run-up.  Today builders hold a supply of homes right in line with equilibrium for the market.  At the same time, the supply of resale homes available in the market has not returned as sharply as the area’s demand.  While the number of resale homes sales grew 16.7% in 2012, the supply of listings dropped 29%.  Currently there is only a 3.8 month supply of homes on the market, notably below the six month market considered equilibrium for the market.  As a result, according to the Federal Housing Finance Agency, Houston’s home price appreciation turned positive in the first quarter of 2012 and has grown each quarter since.

6) Foreclosures Decrease By 10 percent: Houston’s annual foreclosure rate has held remarkably steady over the last six years considering the size and scope of the housing recession, averaging 11,700 foreclosures annually.  In 2012, 9,993 homes were foreclosed upon, a 10% decline from the previous year.

References: Metrostudy, Federal Housing Finance Agency, Houston Association of Realtors, Foreclosure Information & Listing Services

Houston Housing Market 2013 – The Way I See It

Posted in Economy, Houston Condo Market, Houston Market, In The News, National Housing Market | Posted on 01-11-2013 | Written by Mike Inselmann

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.

Housing’s renaissance could lead an economic recovery

Posted in In The News, National Housing Market | Posted on 01-07-2013 | Written by Metrostudy News

Housing’s renaissance could lead an economic recovery – The Washington Post


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The Washington Post ran almost a full page article this weekend in their Real Estate section discussing whether Real Estate’s recovery could lead to a national economic recovery.  The article discusses the reasons why home sales are increasing, such as “Owning a home has never been as attractive,” financially that is.   And “housing has never been as affordable.”  It’s a good read.

Read the full article from The Washington Post – here