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Houston Has Turned the Corner
Metrostudy's report at January Forecast Luncheon predicts continued upturn

15Jan

Forecast Lunch 2013

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The 850 guests attending GHBA's January Forecast Luncheon were all ears as Mike Inselmann of Metrostudy shared a presentation that resonated with potential good news for Houston's homebuilding industry.

Inselmann's traditional method of presenting through PowerPoint was again on tap, and pens and notepads were brandished throughout the crowd.

Initial figures indicate that the national economy is showing signs of a steady, but unexceptional recovery pace, assisted by an increase in new home construction (and all the jobs and materials needed in support of home building).

Inselmann points out that the bad choices in the mortgage industry triggered a housing downturn that pulled almost every sector of the U.S. economy into the abyss in and around 2008. Housing, ironically, is now 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."

Metrostudy's research has concluded that Houston is at the top of almost every list relating to housing and real estate. The figures reflect that the downturn in Texas and Houston was not as drastic as most of the other markets throughout the country. 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 facts are clear that 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 reached roughly 2.8 million workers—twice the job base reported at the end of 1982.

He estimates that Houston will show an additional 95,000 jobs since that point in November 2011, once the final 2012 figures are calculated.

"Jobs are the principal driver 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."

Inselmann reported that the expansion of the energy sector in the past few years has contributed to the robust job recovery.

As a result, new households have been added to absorb the inventory of single family and rental homes in Houston 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,"

Inselmann states. "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."

There was a surge in construction in the past year that caught the suppliers off guard. This has resulted in concrete, building materials and labor to pressure 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,"

Inselmann added. 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," Inselmann reported.

He also added that there are several hurdles remaining that make it difficult to reach that level very soon. They are: „„

  • Lots, materials and labor to build homes are in short supply. „„
  • 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.
  • First time buyers have 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," he says. "And in the meantime home builders will likely start construction on between 26,500 and 27,500 new homes in 2013, an additional 13 to 17 percent increase in the coming year. That is, if production can keep up with demand."

The conclusion of the presentation was that "the outlook for housing, and most types of real estate, is very bright 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."


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